Ever since COVID-19 hit the world in a panic, stock markets around the globe have felt the impact. In America, as the stock market continues to make rapid movement up and down, oil prices have caught much attention of investors. Oil prices in the United States have been making a lot of movement on the market, but it has not necessarily been going in the right direction. Oil declined rapidly and then began to climb as investors and index funds hurried out of near-term futures.
USO recently announced changes to the fund’s makeup. These changes are taking place as USO scrambles to keep investors as more than 75 percent have abandoned their investments. USO is the abbreviation on the stock market that stands for The United State Oil Fund. The fund is very popular among retail investors who want to track the price of oil. However, USO has been experiencing extreme losses as crude prices plummet.
The manager of the fund, USCF, will be executing a reverse share split that is effective starting at the close of business on Tuesday, April 28. This split would lower the amount of outstanding shares while raising the stock’s price. However, none of the fundamentals of the fund would be changed.
The entire world is experiencing an abundance oil during a time when everyone is shut at home due to the Coronavirus lockdowns with consumers temporarily not driving or flying and industrial use at a standstill. Hence, oil usage is at a low. In the meantime, investors look to the end of the year in hopes that it will all even itself out and begin rising again.
While some agree with this most recent announcement, others see it as a bad sign that will leave shareholders with nothing. Still, USCF sees the need to make some changes, even if temporarily, due to the extraordinary market conditions that are impacting crude oil markets and is attempting to move forward shifting focus from front-month contracts and instead of holding long-term West Texas Intermediate contracts.
USCF has also decided to suspend issuing what is known as creation baskets for the time being. Creation baskets allows ETFs to create new shares in an effort to meet demand. These baskets hold underlying securities. With Creation Baskets at a standstill, the ETF can trade with a set amount of shares much like a closed-end mutual fund.
Some see these changes are seen as an expensive move that may implode. Only time will tell. Regardless, money continues to be poured into the USO ETF reaching more than $5 Billion which is an all-time high.