- Oil trades at a recent high despite the war running below an extreme pace, because supply disruptions persist: the Saudi East-West pipeline was closed by Houthi attacks, cutting another 4% of global supply, and the Houthis have captured a city on the Red Sea strait that feeds Suez.
- Reserve dynamics flipped from bearish to supportive for crude: China is now rebuilding inventories rather than selling reserves, while US strategic reserves remain near their lowest levels since 1982.
- Positioning confirms the regime change: longs are selling into the USO and XLE rally, shorts are not rebuilding, and realized volatility in USO has fallen below pre-war levels even as implied volatility holds mid-range.
- USO's own financials swing hard with the futures curve: net income of $414.7 million in July 2026 followed net losses of $366.3 million in June and $270.1 million in May, after a $64.6 million net loss for FY2025 that took net asset value per share down 8.42%.
- USO's structural plumbing is being tuned for faster trading: the fund cut its Authorized Participant transaction fee to $350 per order effective January 1, 2026, and shortened its monthly futures roll from ten days to five starting the same date, targeting roughly 20% per day rebalancing.
Quotes
“Oil is at a recent high even though the war is not running at an extreme pace.”
“The longs are selling into the rally; the shorts are not.”
“Realized volatility in USO has fallen below pre-war levels, suggesting war headlines are no longer the primary driver.”
“China is now rebuilding inventories rather than selling reserves, while US strategic reserves remain near their lowest levels since 1982.”
“net income of $414.7 million in July 2026”