Key Highlights

● USL rose 0.57% to $61.55 in Friday's October 16 intraday session.

● USL holds an equally weighted ladder of 12 consecutive WTI crude futures months.

● Only about 8.33% of its futures portfolio rolls in any given month.

● USL pays no regular dividends and issues an annual Schedule K-1.

United States 12 Month Oil Fund, LP (NYSE American:USL), an exchange-traded commodity pool that holds light sweet crude oil futures, rose 0.57% to $61.55 in intraday trading on Friday, October 16.

Investing in physical crude petroleum through exchange-traded derivative instruments is notorious for destroying long-term capital during periods of commodity contango. Front-month exchange-traded funds, most notably the United States Oil Fund, LP (NYSE American:USO), concentrate derivative exposure in prompt delivery contracts, subjecting investors to severe monthly roll decay when prompt contracts trade at a discount to deferred months. USL was created specifically to eliminate this front-month roll vulnerability.

Rather than concentrating capital in a single prompt futures contract, USL holds an equally weighted, laddered basket of 12 consecutive contract months on light sweet crude oil (WTI) traded on the New York Mercantile Exchange (NYMEX). By spreading contracts across the entire 12-month forward curve, USL blunts front-month volatility and dramatically reduces contango roll friction.

Legal Architecture & Partnership Structure

USL is organized under the Securities Act of 1933 as a Delaware limited partnership and operates as an exchange-traded commodity pool. It is not an open-end mutual fund governed by the Investment Company Act of 1940. United States Commodity Funds LLC (USCF) serves as the general partner and registered Commodity Pool Operator, regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). The fund launched in December 2007, and USCF is based in Walnut Creek, California.

Investors purchasing shares acquire limited partnership units. This partnership structure allows USL to invest directly in commercial commodity futures without entity-level corporate taxation. However, this pass-through status requires unit holders to file annual Schedule K-1 tax reports, reporting their pro-rata share of marked-to-market trading gains, futures expenses, and Treasury collateral interest. USL uses no leverage.

Underlying Benchmark & The 12-Month Equal-Weight Ladder

USL’s benchmark is the daily changes in percentage terms of the spot price of light, sweet crude oil, as measured by the daily changes in the average price of the 12 consecutive contract months traded on NYMEX, beginning with the prompt month.

Under this disciplined architecture, approximately one-twelfth (8.33%) of the fund’s futures portfolio is allocated to each of the next 12 monthly delivery contracts. Each month, only the single prompt-month contract expires and must be rolled into the twelfth deferred month, while the remaining eleven contracts simply roll forward one position. This structural design ensures that only 8.33% of the fund’s assets are subject to roll friction in any given month, compared to 100% for naive front-month products.

Cost Structure, Operating Fees & Collateral Cash Yield

USCF charges an annual management fee of 0.60% of average daily net assets for USL. Total annual operating expenses, incorporating brokerage commissions, clearing fees, registration expenses, and auditing overhead, total approximately 1.01%.

Because futures contracts require only performance margin (typically 10% to 15% of notional value), approximately 85% to 90% of USL’s portfolio is held in cash, cash equivalents, and short-term US Treasury obligations. In an elevated interest rate environment, this substantial collateral reserve generates significant risk-free interest income that helps offset the fund’s management fees and execution costs.

Performance Dissection: Mitigating Contango Drag

In intraday trading on Friday, October 16, USL opened at $61.50 and traded between $61.31 and $61.63, compared with a previous close of $61.20. Comparing USL’s multi-year tracking against front-month crude funds reveals the profound defensive benefit of curve laddering.

During periods of prompt market oversupply, when front-month WTI futures trade in steep contango relative to deferred contracts, front-month funds suffer catastrophic roll losses. In contrast, USL’s 12-month laddered structure absorbs only a fraction of the prompt contango drag, preserving investor capital across complex commodity cycles.

Distribution Profile & Schedule K-1 Tax Obligations

USL pays zero regular cash dividends. Its 30-day SEC yield and trailing dividend distribution yield stand at 0.00%. All cash earnings generated from Treasury collateral and futures trading profits are retained in the partnership to increase net asset value.

From a taxation standpoint, unit holders receive an annual Schedule K-1. Under Section 1256 of the Internal Revenue Code, all futures trading profits and losses are marked to market on 31 December and taxed at a blended rate of 60% long-term and 40% short-term capital gains, regardless of investor holding duration. Holding USL in an IRA can generate Unrelated Business Taxable Income (UBTI) liabilities if debt-financed thresholds are exceeded.

Secondary Market Liquidity & Lead Market Making

Trading under the ticker USL, the fund maintains active secondary market liquidity supported by lead market makers and institutional authorized participants. Intraday bid-ask spreads typically hover between two and four cents per share during normal trading hours.

Because underlying portfolio holdings trade across 12 liquid NYMEX contract months, authorized participants easily create and redeem shares, ensuring secondary quotes remain closely aligned with the fund's indicative intraday net asset value.

Primary Investment Risks: Curve Inversion & Crude Demand Shocks

Investing in USL involves significant commodity risks. Crude oil is acutely sensitive to global macroeconomic recessions, OPEC+ supply quota adjustments, international geopolitical conflicts, and technological shifts in transportation electrification.

Furthermore, while USL protects against contango drag, it also blunts prompt backwardation gains. During sudden prompt physical delivery squeezes when spot oil prices skyrocket, deferred contracts typically rise much less, causing USL to underperform pure front-month funds during sudden supply crunches.

One Twelfth of Assets Rolls Monthly

USL spreads its crude oil futures exposure across 12 consecutive monthly contracts, so about 8.33% of the portfolio is subject to roll friction in a given month, compared with 100% for naive front-month products.

About 85% to 90% of assets are held in cash, cash equivalents, and short-term US Treasury obligations. The fund pays no regular cash dividends and issues an annual Schedule K-1 to unit holders.