US Oil 10-Q
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Graphic Reference]
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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x
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Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 2006.
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¨
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Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from
to .
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Commission
file number: 001-32824
United
States Oil Fund, LP
(Exact
name of registrant as specified in its charter)
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Delaware
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20-2830691
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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1320
Harbor Bay Parkway, Suite 145
Alameda,
California 94502
(Address
of principal executive offices)
(510)
522-3336
(Registrant’s
telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
x
Yes ¨
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one.)
Large
accelerated filer ¨ Accelerated
filer ¨ Non-accelerated
filer x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.):
¨
Yes x
No
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UNITED
STATES OIL FUND, LP
Table
of Contents
FINANCIAL
INFORMATION
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United
States Oil Fund, LP
Statement
of Financial Condition
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March
31, 2006 (unaudited)
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December
31, 2005
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Assets
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Cash
…………………………………
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$1,000
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$
1,000
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-------------------------------------------------------
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Partnership
Capital
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Limited
partner ……………………
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$980
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$
980
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General
partner …………..………...
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20
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20
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Total
partnership capital
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$1,000
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$1,000
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See
notes
to statement of financial condition
UNITED
STATES OIL FUND, LP
Notes
to
Statement of Financial Condition
March
31,
2006 (unaudited)
Financial
information included herein is unaudited, however, such information reflects
all
adjustments which are, in the opinion of management, necessary for the fair
presentation of the financial statements for the interim period. The results
for
the interim period are not necessarily indicative of the results to be expected
for a full year. As of March 31, 2006 the Fund had not commenced operations.
For
the three months ended March 31, 2006, all of the Fund’s expenses have been
funded by an affiliate of the General Partner. The Fund does not have any
obligation or intention to reimburse such payments. The accompanying unaudited
statement of financial condition has been prepared in accordance with Rule
10-01
of Regulation S-X promulgated by the Securities and Exchange Commission and
therefore does not include all information and footnote disclosure required
under accounting principles generally accepted in the United States of America.
It is suggested that the March 31, 2006 financial statements should be read
in
conjunction with the financial statements and notes included in the Fund’s
audited financial statements in the Pre-Effective Amendment No. 7 to Form S-1,
declared effective April 10, 2006, for the period ended December 31,
2005.
United
States Oil Fund, LP (formerly New York Oil ETF, LP) (the “Fund”), was organized
as a limited partnership under the laws of the state of Delaware on May 12,
2005
and changed its name on September 30, 2005. The Fund is a commodity pool that
will issue units that may be purchased and sold on the American Stock Exchange.
The Fund will continue in perpetuity, unless terminated sooner upon the
occurrence of one or more events as described in its First Amended and Restated
Limited Partnership Agreement (the “Limited Partnership Agreement”). The
investment objective of the Fund is for its net asset value to reflect the
performance of the price of light sweet crude oil, less the Fund’s expenses. The
Fund will accomplish its objectives through investments in futures contracts
for
light, sweet crude oil, other types of crude oil, heating oil, gasoline,
national gas and other petroleum-based fuels that are traded on the New York
Mercantile Exchange and other U.S. and foreign exchanges (“Oil Futures
Contracts”) and other oil interests such as cash-settled options on Oil Futures
Contracts, forward contracts for oil, and over-the-counter transactions that
are
based on the price of oil. Victoria Bay Asset Management, LLC is the General
Partner of the Fund (the “General Partner”) and is also responsible for the
management of the Fund. The General Partner is a member of the National Futures
Association and is a commodity pool operator effective December 1, 2005. The
Fund intends to have a fiscal year ending on December 31.
The
Fund
will issue limited partnership interests (“Units”) to authorized purchasers by
offering creation baskets consisting of 100,000 Units (“Creation Baskets”)
through a marketing agent. The purchase price for a Creation Basket will be
based upon the net asset value of a Fund Unit. In addition, authorized
purchasers will pay the Fund a $1,000 fee for the creation of each Creation
Basket. The initial offering price of the initial creation basket will be based
on the closing price of the near month oil futures contracts as traded and
reported on the New York Mercantile Exchange on the last business day prior
to
the effective date. Additionally, subsequent to the sale of the initial Creation
Basket, Units can be purchased or sold on a nationally recognized securities
exchange in smaller increments. Units purchased or sold on a nationally
recognized securities exchange will not be made at the net asset value of the
Fund but rather at market prices quoted on the stock exchange.
At
March
31, 2006 the Fund has not generated any revenues and has been dependent upon
the
contributions from the General Partner and an affiliate of the Fund. Once the
Fund commences operations, the management of the general partner expects the
Fund to generate sufficient revenue to meet its operational
expenses.
There
can
be no assurance that additional funds will be available to the Fund, or
available on terms acceptable to the Fund.
(1)
Securities Valuation:
Securities
listed on a national securities exchange are valued at their last reported
sales
price on the final day of trading as of the date of the statement of financial
condition. Any other securities not traded as described above are valued at
their fair value as determined in good faith by the Board of Directors of the
General Partner. The resulting unrealized gains and losses will be included
in
the statement of operations.
(2)
Securities transactions and investment income:
Securities
transactions are recorded on a trade date basis. Realized gains and losses
on
sales of securities are determined using the first-in, first-out method and
will
be included in the statement of operations.
(3)
Futures contracts:
During
the period in which the futures contract is open, changes in the contract value
are recorded as an unrealized gain or loss by marking the contract to market
to
reflect the value of the contract at the end of trading on the reporting date.
Futures contracts are valued at the settlement price established by the board
of
trade or exchange on which they are traded. The resulting unrealized gains
or
losses will be included in the statement of financial condition and the
statement of operations. Realized gains and losses will be included in the
statement of operations.
(4)
Options:
Premiums
paid for options contracts purchased are included in the statement of financial
condition. Option contracts are valued at their last reported sales price on
the
final day of trading as of the date of the statement of financial condition.
If
the sales price is outside the range of the bid/ask price, the average of the
bid/ask price is used. If no sale is reported then the average of the bid/ask
price is used. When option contracts expire or are closed, realized gains or
losses are recognized without regard to any unrealized gains or losses on the
underlying securities.
(5)
Swaps:
The
Fund
may enter into swap agreements. The swaps are marked-to-market on a daily basis.
The Fund recognizes in the statement of financial condition the swap agreements
at fair value and changes in fair values are reflected as gain or loss in the
statement of operations. When a contract is closed, the Fund records in the
statement of operations a realized gain or loss equal to the cash
exchanged.
(6)
Forward contracts:
The
Fund
may enter into forward contracts. Forward transactions are contracts or
agreements for delayed delivery of specific currencies or commodities in which
the seller agrees to make delivery at a specified future date of specified
currencies or commodities. Risks associated with forward contracts include
the
inability of counterparties to meet the terms of their contracts and movements
in fair values. Gains and losses on forward transactions are recorded based
on
changes in fair values and are included with net gain (loss) in the statement
of
operations.
(7)
Use of estimates:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statement. Actual results could differ from those
estimates.
Costs
incurred in connection with organizing the Fund and the initial offering costs
of the Units were borne by the General Partner, and are not subject to
reimbursement by the Fund. Such costs incurred through March 31, 2006 and
through the completion of the offering by an affiliate of the General Partner
amounted to approximately $1,517,000
and are
not reflected in the accompanying statement of financial condition.
Under
the
Limited Partnership Agreement, the General Partner is responsible for investing
and reinvesting the assets of the Fund in accordance with the objectives and
policies of the Fund. In addition, the General Partner will arrange for one
of
more third parties to provide administrative, custody, accounting, transfer
agency and other necessary services to the Fund. For these services, the Fund
is
contractually obligated to pay the General Partner a fee based on average daily
net assets and paid monthly that is equal to 0.50% per annum on average net
assets of $1,000,000,000 or less and 0.20% of average daily net assets that
are
greater than $1,000,000,000. The Fund will pay for all brokerage fees, taxes
and
other expenses.
The
Fund
is not taxed on its income. Instead the individual investors’ respective shares
of the Fund’s taxable income are reported on the individual investors’ income
tax returns.
Authorized
persons may redeem Units from the Fund only in blocks of 100,000 Units called
Redemption Baskets. The amount of the redemption proceeds for a Redemption
Basket will be equal to the net asset value of the Fund Units in the Redemption
Basket.
On
June
23, 2005, the General Partner made a $20 capital contribution to the Fund.
Additionally, Wainwright Holdings, Inc. (“Wainwright”), contributed $980 to the
Fund for its limited partnership interest. The General Partner is 100% owned
by
Wainwright, which is controlled by the President of the General
Partner.
Profit
or
loss shall be allocated among the partners of the Fund in proportion to the
number of Units each partner holds as of the close of business on the last
business day of the period. The General Partner may revise, alter or otherwise
modify this method of allocation as described in the Limited Partnership
Agreement.
The
Fund
will calculate net asset value on each trading day by taking the current market
value of its total assets, subtracting any liabilities and dividing the amount
by the total number of Units issued and outstanding. The Fund will use the
New
York Mercantile Exchange closing price for contracts held on the New York
Mercantile Exchange, and will calculate the value of all other Fund investments
as of the close of the New York Stock Exchange.
The
Fund
is party to a marketing agent agreement dated March 13, 2006 with ALPS
Distributors Inc., a Colorado corporation (“ALPS”), whereby ALPS will provide
certain marketing services for the Fund as outlined in the agreement. The fees
of the marketing agent will be borne by the General Partner, and are as follows:
a marketing fee of $425,000 per annum plus the following incentive fee: zero
basis points on Fund assets from $0 - $500 million; 4 basis points on Fund
assets from $500 million - $4 billion; and 3 basis points on Fund assets in
excess of $4 billion. The above fees do not include the following expenses,
which will be billed back to the General Partner: cost of placing advertisements
in various periodicals; web construction and development; or the printing and
production of various marketing materials.
The
Fund
is also party to a custodian agreement dated March 13, 2006 with Brown Brothers
Harriman & Co., a New York limited partnership (“Brown Brothers”), whereby
Brown Brothers will hold investments on behalf of the Fund. The General Partner
of the Fund will pay the fees of the custodian, which shall be agreed to from
time to time between the parties. In addition, the Fund is party to an
administrative agency agreement dated March 13, 2006, also with Brown Brothers,
whereby Brown Brothers will act as the administrative agent, transfer agent
and
registrar for the Fund. The General Partner will pay the fees of Brown Brothers
for its services under these agreements and such fees will be determined by
the
parties from time to time. Currently, the General Partner will pay Brown
Brothers for its services in the foregoing capacity a minimum amount of $300,000
annually and, once the Fund’s assets are above $500 million, an asset charge,
which is not reflected in either agreement, ranging between 0.035% and 0.06%,
plus a $50,000 transfer agency fee, and in either case transaction charges
of
$7.00 to $15.00 per transaction.
The
Fund
will invest primarily in oil futures contracts, and particularly in oil futures
contracts traded on the New York Mercantile Exchange (the “Exchange”).
Representatives of the Exchange have at various times asserted varying claims
regarding the Fund’s operations and the Exchange’s service marks and settlement
prices of oil futures contracts traded on the Exchange.
The
Exchange initially claimed that the Fund’s use of the Exchange’s service marks
would cause confusion as to the Fund’s source, origin, sponsorship or approval,
and constitutes infringement of the Exchange’s trademark rights and unfair
competition and dilution of the Exchange’s marks. In response to these claims,
the General Partner changed the Fund’s name. In addition, the Fund expressly
disclaims any association with the Exchange or endorsement of the Fund by the
Exchange and acknowledges that “NYMEX” and “New York Mercantile Exchange” are
registered trademarks of such Exchange.
The
General Partner has also engaged in discussions with the Exchange regarding
a
possible license agreement. In this regard, the Fund received a letter from
the
Exchange dated March 29, 2006 (the “March 29th
Letter”). The March 29th
Letter
was a response to the Fund’s request for additional information in connection
with the negotiation of the possible license agreement. In the March
29th
Letter,
the Exchange stated that it would cause the cessation of any market data
vendor’s provision of Exchange settlement prices to the Fund and/or take other
action to prevent the Fund from using any Exchange settlement prices unless
the
Fund enters into a license agreement with the Exchange, or has indicated in
writing that it will cease from using any Exchange settlement prices. The Fund
is in the process of finalizing a licensing agreement with the
Exchange.
Separately,
Goldman, Sachs & Co. (“Goldman Sachs”) sent the Fund a letter on March 17,
2006, providing the Fund notice under 35 U.S.C. Section 154(d) of two pending
United States patent applications, Publication Nos. 2004/0225593A1 and
2006/0036533A1. The Fund currently is reviewing the Goldman Sachs published
patent applications, and is engaged in discussions with Goldman Sachs regarding
their pending applications and the Fund’s own pending patent application. At
this time, due in part to the fact that the Goldman Sachs patent applications
are pending and have not been issued as U.S. Patents, the Fund is unable to
determine what the outcome of this matter will be.
On
April
10, 2006, USOF listed its Units on the American Stock Exchange under the ticker
symbol “USO”. On that day, USOF established its initial NAV by setting the price
at $67.39 per Unit and issued 200,000 Units to the Initial Authorized Purchaser,
KV Execution Services LLC, in exchange for $13,478,000 in cash. USOF also
commenced investment operations on that day by purchasing oil futures contracts
traded on the New York Mercantile Exchange that are based on West Texas
Intermediate light, sweet crude oil. The total market value of the crude oil
futures contracts purchased was $13,418,501 at the time of purchase. USOF
established cash deposits equal to $13,478,000 at the time of the initial sale
of Units. The majority of those cash assets were held at USOF’s custodian bank
while less than 10% of the cash balance was held as margin deposits with USOF’s
futures commission merchant relating to the Oil Futures Contracts
purchased.
As
of May
18, 2006, USOF had 3,500,000 outstanding Units. At that time, USOF owned 3,316
light, sweet crude oil futures contracts, which had a market value as of the
close of trading that day of $232,584,240. USOF maintained cash deposits at
USOF’s custodian bank and margin with USOF’s futures commission merchant in an
aggregate amount of $232,796,908.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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This
information should be read in conjunction with the accompanying financial
statements and notes to the statement of financial condition included in this
Form 10-Q. The discussion and analysis that follows may contain statements
that
relate to future performance or future events. In some cases, such
forward-looking statements can be identified by terminology such as
“anticipate,” “may,” “should,” “expect,” “plan,” “believe,” “estimate,”
“predict,” “potential” or similar terminology. Neither the United States Oil
Fund, LP, nor any other person assumes responsibility for the accuracy or
completeness of forward-looking statements. Neither the United States Oil Fund,
LP nor its general partner is under a duty to update any of the forward-looking
statements to conform such statements to actual results or to a change in
expectations or predictions.
Introduction
United
States Oil Fund, LP, a Delaware limited partnership (“USOF”), is a commodity
pool that issues units that may be purchased and sold on the American Stock
Exchange. USOF changed its name from New York Oil ETF, LP to United States
Oil Fund, LP on September 30, 2005. The investment objective of USOF is for
changes in the units’ net asset value (“NAV”) to reflect changes in the
spot price of West Texas Intermediate (“WTI”) light, sweet crude oil delivered
to Cushing, Oklahoma (“WTI light, sweet crude oil”), less USOF’s
expenses.
USOF
seeks to achieve its investment objective by investing in a combination of
oil
futures contracts and other oil interests such that changes in USOF’s NAV will
closely track the changes in the price of a specified oil futures contract
(“Benchmark Oil Futures Contract”). USOF’s general partner believes the
Benchmark Oil Futures Contract historically exhibited a close correlation with
the spot price of WTI light, sweet crude oil.
At
present, on any valuation day the Benchmark Oil Futures Contract is the near
month futures contract for WTI light, sweet crude oil traded on the New York
Mercantile Exchange unless the Near Month Contract will expire within two weeks
of the valuation day, in which case the Benchmark Oil Futures Contract is the
Second to Nearest Out Month Contract for WTI light, sweet crude oil traded
on
the New York Mercantile Exchange. “Near Month Contract” means the next contract
traded on the New York Mercantile Exchange due to expire; “Second to Nearest Out
Month Contract” means the first contract traded on the New York Mercantile
Exchange due to expire after the Near Month Contract.
USOF
invests in futures contracts for WTI light, sweet crude oil, other types of
crude oil, heating oil, gasoline, natural gas, and other petroleum-based fuels
that are traded on the New York Mercantile Exchange or other U.S. and foreign
exchanges (collectively, “Oil Futures Contracts”) and other oil interests such
as cash-settled options on Oil Futures Contracts, forward contracts for oil,
and
over-the-counter transactions that are based on the price of oil, other
petroleum-based fuels, Oil Futures Contracts and indices based on the foregoing
(collectively, “Other Oil Interests”). The general partner of USOF, Victoria Bay
Asset Management, LLC the (“General Partner”), which is registered as a
commodity pool operator, is authorized by the First Amended and Restated
Agreement of Limited Partnership (“LP Agreement”) to manage USOF. The General
Partner is authorized by USOF in its sole judgment to employ, establish the
terms of employment for, and terminate commodities trading advisors or futures
commission merchants.
Valuation
of Crude Oil Futures Contracts and the Computation of the Net Asset
Value
The
NAV
of USOF units is calculated once each trading day. The NAV for a particular
trading day is released after 4:15 p.m. New York time. NAV is calculated as
of the earlier of the close of the New York Stock Exchange or 4:00 p.m. New
York time. Trading on the American Stock Exchange typically closes at
4:15 p.m. New York time. USOF uses the New York Mercantile Exchange closing
price (determined at the earlier of the close of that exchange or 2:30 p.m.
New York time) for the contracts held on the New York Mercantile Exchange,
but
calculates or determines the value of all other USOF investments as of the
earlier of the close of the New York Stock Exchange or 4:00 p.m. New York
time.
Management’s
Discussion of Results of Operation and the Crude Oil
Market
Results
of operations. During
the time period from January 1, 2006 to March 31, 2006, USOF had not yet
commenced investment activities nor issued units. No Oil Futures Contracts
or
other Oil Interests were purchased or owned by USOF during this reporting
period. There were no receipts or disbursements of cash from USOF during this
reporting period. USOF did not receive any revenue, capital gains (losses),
or
incur any expenses during this time period.
Expenses
incurred during the first quarter of 2006 in connection with organizing USOF
and
the initial offering costs of the units were borne by the General Partner,
and
are not subject to reimbursement by USOF.
Crude
oil market.
During
the first quarter of 2006, crude oil prices were impacted by several factors.
On
the consumption side, demand remained strong as continued global economic
growth, especially in emerging economies such as China and India, remained
brisk. On the supply side, production increases remained muted since the
lingering effects of Hurricane Katrina continued to impact U.S. production
and
violence impacted production in Iraq and Nigeria. In addition, geo-political
concerns regarding other key crude oil producing countries, such as Iran and
Venezuela, added to supply concerns. As a result, crude oil prices trended
higher over the course of the first quarter of 2006 and showed periods of
greater than usual volatility.
The
closing price on December 31, 2005 of the then near month light, sweet crude
oil
futures contract traded on the New York Mercantile Exchange was $61.04. During
the first quarter of 2006, the highest price of the near month crude oil future
was $69.20, which occurred in late February. As of March 31, 2006, the closing
price of the then near month light, sweet crude oil futures contract traded
on
the New York Mercantile Exchange was $62.70.
Subsequent
Events
On
April
10, 2006, USOF listed its units on the American Stock Exchange under the ticker
symbol “USO”. On that day USOF established its initial NAV by setting the price
at $67.39 per unit and issued 200,000 units to the Initial Authorized Purchaser,
KV Execution Services LLC, in exchange for $13,478,000 in cash. USOF also
commenced investment operations on that day by purchasing oil futures contracts
traded on the New York Mercantile Exchange that are based on West Texas
Intermediate light, sweet crude oil. The total market value of the crude oil
futures contracts purchased was $13,418,501 at the time of purchase. USOF
established cash deposits equal to $13,478,000 at the time of the initial sale
of units. The majority of those cash assets were held at USOF’s custodian bank
while less than 10% of the cash balance was held as margin deposits with USOF’s
futures commission merchant relating to the Oil Futures Contracts
purchased.
As
of May
18, 2006, USOF had 3,500,000 outstanding units. At that time, USOF owned 3,316
light, sweet crude oil futures contracts, which had a market value as of the
close of trading that day of $232,584,240. USOF maintained cash deposits at
USOF’s custodian bank and margin with USOF’s futures commission merchant in an
aggregate amount of $232,796,908.
On
May 3,
2006, the New York Mercantile Exchange (NYMEX), announced it would list and
start trading a number of energy commodity related futures contracts on an
electronic trading platform known as CME Globex, which is operated by the
Chicago Mercantile Exchange. In subsequent announcements, the New York
Mercantile Exchange announced that those energy futures contracts would include
light, sweet crude oil, that initially these electronic contracts will allow
for
financial settlement and not physical settlement, and that the anticipated
starting date of electronic trading is expected to be June 11, 2006. The General
Partner will evaluate this new proposed contract, compare it to the existing
New
York Mercantile Exchange light, sweet crude oil contract, and determine if
it is
a suitable investment for USOF’s portfolio.
Critical
Accounting Policies
Preparation
of the financial statements and related disclosures in compliance with
accounting principles generally accepted in the United States of America
requires the application of appropriate accounting rules and guidance, as well
as the use of estimates. USOF's application of these policies involves judgments
and actual results may differ from the estimates used. The General Partner
has
evaluated the nature and types of estimates that it will make in preparing
USOF's financial statements and related disclosures once USOF commences trading
operations and has determined that the valuation of its investments which are
not traded on a United States or internationally recognized futures exchange
(such as forward contracts and over-the-counter contracts) involves a
significant management estimate. While not currently applicable given the fact
that during the time period covered by this report, USOF was not involved in
trading activities, the values used by USOF for its forward contracts will
be
provided by its commodity broker who uses market prices when available, while
over-the-counter contracts will be valued based on the present value of
estimated future cash flows that would be received from or paid to a third
party
in settlement of these derivative contracts prior to their delivery date and
valued on a daily basis.
Liquidity
and Capital Resources
USOF
does
not anticipate making use of borrowings or other lines of credit to meet its
obligations. USOF has met, and it is anticipated that USOF will meet, its
liquidity needs in the normal course of business from the proceeds of the sale
of its investments or from cash and/or short-term U.S. Treasuries that it
intends to hold at all times. USOF’s liquidity needs include redeeming units,
providing margin deposits for its existing oil futures contracts on the purchase
of additional crude oil futures contracts and posting collateral for its
over-the-counter contracts and payment of its expenses, summarized below under
“Contractual Obligations.”
USOF
will
generate cash primarily from (i) the sale of Creation Baskets and (ii) interest
earned on cash and its investments in Treasuries. As of March 31, 2006, USOF
had
not begun trading activities. USOF anticipates that all of its net assets will
be allocated to trading in oil interests. A significant portion of the NAV
will
be held in Treasuries and cash that could or will be used as margin for USOF's
trading in oil interests. The percentage that Treasuries will bear to the total
net assets will vary from period to period as the market values of the oil
interests change. The balance of the net assets will be held in USOF's Oil
Futures Contracts and Other Oil Interests trading account. Interest earned
on
USOF's interest bearing-funds will be paid to USOF.
USOF's
investment in oil interests will be subject to periods of illiquidity because
of
market conditions, regulatory considerations and other reasons. For example,
commodity exchanges limit the fluctuations in Oil Futures Contracts prices
during a single day by regulations referred to as “daily limits.” During a
single day, no trades may be executed at prices beyond the daily limit. Once
the
price of an Oil Futures Contract has increased or decreased by an amount equal
to the daily limit, positions in the contracts can neither be taken or
liquidated unless the traders are willing to effect trades at or within the
limit. Such market conditions could prevent USOF from promptly liquidating
its
positions in Oil Futures Contracts. To date, all of USOF's and the General
Partner's expenses have been funded by their affiliates. Neither USOF nor the
General Partner have any obligation or intention to refund such payments by
their affiliates. These affiliates are under no obligation to continue payment
of USOF's or the General Partner's expenses. Once USOF commences operations,
the
management of the General Partner expects USOF to generate sufficient revenue
to
meet its operational expenses. If such affiliates were to discontinue the
payment of these expenses and the General Partner and USOF are unsuccessful
in
raising sufficient funds to cover USOF's expenses or in locating any other
source of funding, USOF will terminate and investors may lose all or part of
their investment.
Market
Risk
Trading
in Oil Futures Contracts and Other Oil Interests such as forwards will involve
USOF entering into contractual commitments to purchase or sell oil at a
specified date in the future. The gross or face amount of the contracts will
significantly exceed USOF's future cash requirements since USOF intends to
close
out its open positions prior to settlement. As a result, USOF should only be
subject to the risk of loss arising from the change in value of the contracts.
USOF considers the "fair value'' of its derivative instruments to be the
unrealized gain or loss on the contracts. The market risk associated with USOF's
commitments to purchase oil will be limited to the gross face amount of the
contacts held. However, should USOF enter into a contractual commitment to
sell
oil, it would be required to make delivery of the oil at the contract price,
repurchase the contract at prevailing prices or settle in cash. Since there
are
no limits on the future price of oil, the market risk to USOF could be
unlimited. USOF's exposure to market risk will depend on a number of factors
including the markets for oil, the volatility of interest rates and foreign
exchange rates, the liquidity of the Oil Futures Contracts and Other Oil
Interests markets and the relationships among the contracts held by USOF. The
limited experience that USOF has had in utilizing its model to trade in oil
interests in a manner intended to track the spot price of oil, as well as
drastic market occurrences, could ultimately lead to the loss of all or
substantially all of an investor’s capital.
Credit
Risk
When
USOF
enters into Oil Futures Contracts and Other Oil Interests, it will be exposed
to
the credit risk that the counterparty will not be able to meet its obligations.
The counterparty for the Oil Futures Contracts traded on the New York Mercantile
Exchange and on most other foreign futures exchanges is the clearing house
associated with the particular exchange. In general, clearing houses are backed
by their members who may be required to share in the financial burden resulting
from the nonperformance of one of their members and therefore, this additional
member support should significantly reduce credit risk. Some foreign exchanges
are not backed by their clearing house members but may be backed by a consortium
of banks or other financial institutions. There can be no assurance that any
counterparty, clearing house, or their members or financial backers will satisfy
their obligations to USOF. The General Partner will attempt to manage the credit
risk of USOF by following various trading limitations and policies. In
particular, USOF intends to post margin and/or hold liquid assets that will
be
approximately equal to the face amount of its obligations to counterparties
under the Oil Futures Contracts and Other Oil Interests it holds. The General
Partner will implement procedures that will include, but will not be limited
to,
executing and clearing trades only with creditworthy parties and/or requiring
the posting of collateral or margin by such parties for the benefit of USOF
to
limit its credit exposure. ABN Amro, USOF's commodity broker, or any other
broker that may be retained by USOF in the future, when acting as USOF's futures
commission merchant in accepting orders to purchase or sell Oil Futures
Contracts on United States exchanges, will be required by the U.S. Commodities
Futures Trading Commission (“CFTC”) regulations to separately account for and
segregate as belonging to USOF, all assets of USOF relating to domestic Oil
Futures Contracts trading. These commodity brokers are not allowed to commingle
USOF's assets with their other assets. In addition, the CFTC requires commodity
brokers to hold in a secure account the USOF assets related to foreign Oil
Futures Contracts trading.
Off
Balance Sheet Financing
As
of
March 31,
2006,
USOF has no loan guarantee, credit support or other off-balance sheet
arrangements of any kind other than agreements entered into in the normal course
of business, which may include indemnification provisions relating to certain
risks that service providers undertake in performing services that are in the
best interests of USOF. While USOF's exposure under these indemnification
provisions cannot be estimated, they are not expected to have a material impact
on USOF's financial position.
Redemption
Basket Obligation
Other
than the liquidity necessary to meet its investment objective and pay its
contractual obligations described below, USOF will require liquidity to redeem
Redemption Baskets. USOF intends to satisfy this obligation through the transfer
of its Treasuries or cash in an amount proportionate to the number of units
being redeemed. The
redemption distribution from USOF will consist of a transfer to the redeeming
Authorized Purchaser of an amount of Treasuries and cash that is in the same
proportion to the total assets of USOF (net of estimated accrued but unpaid
fees, expenses and other liabilities) on the date the order to redeem is
properly received as the number of units to be redeemed under the redemption
order is in proportion to the total number of units outstanding on the date
the
order is received. The General Partner, directly or in consultation with the
administrator, determines the requirements for Treasuries and the amounts of
cash, including the maximum permitted remaining maturity of a Treasury, and
the
proportions of Treasuries and cash that may be included in distributions to
redeem baskets. The marketing agent will publish such requirements as of 4:00
p.m. New York time on the redemption order date.
Contractual
Obligations
USOF's
primary contractual obligations will be with the General Partner. In return
for
its services, the General Partner will be entitled to a management fee
calculated as a fixed percentage of USOF's average daily net assets, currently
0.50% per annum on average daily net assets of $1 billion or less, and 0.20%
of
the average daily net assets above $1 billion. The General Partner or its
affiliate, Wainwright Holdings, Inc., has agreed to pay the start-up costs
associated with the formation of USOF, primarily its legal, accounting and
other
costs in connection with its registration with the CFTC as a commodity pool
operator and the registration and listing of USOF with the U.S. Securities
and
Exchange Commission (“SEC”) and the American Stock Exchange, respectively. The
General Partner has agreed to pay the fees of the custodian and transfer agent,
Brown Brothers Harriman & Co., as well as Brown Brothers Harriman &
Co.'s fees for performing administrative services, including fees in connection
with the preparation of USOF’s financial statements, SEC reports and CFTC
reports. The General Partner will pay USOF's accounting, tax and marketing
fees.
The General Partner is also in the process of negotiating a licensing agreement
with the New York Mercantile Exchange under which certain licensing fees will
be
paid to the exchange by the General Partner.
In
addition to the General Partner's management fee, USOF pays its brokerage fees,
over-the-counter dealer spreads, fees to ABN Amro, and extraordinary expenses.
The latter are expenses not in the ordinary course of its business, including
the indemnification of any person against liabilities and obligations to the
extent permitted by law and under the LP Agreement, the bringing or defending
of
actions in law or in equity or otherwise conducting litigation and incurring
legal expenses and the settlement of claims and litigation. Commission payments
to ABN Amro are on a contract-by-contract, or round turn, basis.
The
parties cannot anticipate the amount of payments that will be required under
these arrangements for future periods as USOF's net asset values and trading
levels to meet its investment objectives will not be known until a future date.
These agreements are effective for a specific term agreed upon by the parties
with an option to renew, or, in some cases, are in effect for the duration
of
USOF's existence. Either party may terminate these agreements earlier for
certain reasons listed in the agreements.
|
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
None.
The
duly
authorized officers of Victoria Bay Asset Management, LLC, USOF’s general
partner, who perform functions equivalent to those a principal executive officer
and principal financial officer of USOF would perform if the USOF had any
officers, have evaluated the effectiveness of USOF’s disclosure controls and
procedures, and have concluded that the disclosure controls and procedures
of
USOF have been effective as of the end of the period covered by this quarterly
report.
There
were no changes in USOF’s internal control over financial reporting during
USOF’s last fiscal quarter that have materially affected, or are reasonably
likely to materially affect USOF’s internal control over financial
reporting.
None.
There
has
been not a material change from the risk factors previously disclosed in the
registrant’s Form S-1, effective April 10, 2006.
|
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
None.
|
|
Defaults
Upon Senior Securities
|
None.
|
|
Submission
of Matters to a Vote of Security
Holders
|
None.
Election
of Chief Financial Officer
Effective
May 23, 2006, Howard Mah has been appointed Chief Financial Officer (CFO) of
the
General Partner of the United States Oil Fund, LP.
Monthly
Account Statements
Pursuant
to the requirement under part 4.22 of the Commodities Exchange Act, each month
USOF publishes an account statement for its unitholders, which includes a
statement of income (loss) and a statement of changes in net asset value. The
account statement is posted on USOF’s website at www.usoilfund.com and is
generally available on the (10th) business day following month-end.
|
U.S.
Oil Fund, LP
Monthly
Account Statement
For
the Month Ended April 30, 2006
|
|
| |
|
|
Statement
of Income (Loss)
|
|
| |
|
|
Income
|
|
|
Gross
Realized Trading Gain (Loss)
|
$
55,400
|
|
Unrealized
Gain (Loss) on Market Value of Futures
|
(3,796,140)
|
|
ETF
Transaction Fees
|
14,000
|
|
Interest
Income
|
61,863
|
|
Interest
on Cash Held Away
|
12,591
|
|
Total
Income
|
$
(3,652,286)
|
| |
|
|
Expenses
|
|
|
Investment
Advisory Fee
|
$
18,542
|
|
Futures
Commission Expense
|
11,101
|
|
Total
Expenses
|
$
29,643
|
| |
|
|
Net
Gain (Loss)
|
$
(3,681,929)
|
| |
|
|
Statement
of Changes in Net Asset Value
|
|
| |
|
|
Net
Asset Value Beginning of Period 4/1/06
|
$
-
|
|
Additions
(3,300,000 Units)
|
233,599,732
|
|
Withdrawals
(100,000 Units)
|
(6,793,434)
|
|
Net
Gain (Loss)
|
$
(3,681,929)
|
| |
|
|
Net
Asset Value End of Period
|
$
223,124,369
|
|
Net
Asset Value Per Unit
|
$
69.73
|
| |
|
Exhibits
| |
|
|
|
31.1
|
|
Certification
by Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
| |
|
|
31.2
|
|
Certification
by Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
| |
|
|
32.1
|
|
Certification
by Principal Executive Officer Pursuant to 18 U.S.C. Section 1350,
As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
| |
|
|
32.2
|
|
Certification
by Principal Financial Officer Pursuant to 18 U.S.C. Section 1350,
As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
[Missing
Graphic Reference]
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
United
States Oil Fund, LP (Registrant)
By:
Victoria Bay Asset Management, LLC, its general partner
|
| |
| |
| |
|
By:
/s/ Nicholas D. Gerber
|
|
Nicholas
D. Gerber
|
|
Chief
Executive Officer
(Principal
executive officer)
|
| |
|
Date:
May 30, 2006
|
| |
|
By:
/s/ Howard Mah
|
|
Howard
Mah
|
|
Chief
Financial Officer
(Principal
financial officer)
|
| |
|
Date:
May 30, 2006
|