Shares of the United States Oil Fund (USO) plunged 4.5% to $106.21 on Wednesday as crude oil broke below $72 a barrel — its lowest since early March — erasing weeks of geopolitical premium in a single brutal stretch. Crude fell toward $72 as a growing number of tankers resumed transit through the Strait of Hormuz amid advances in U.S.–Iran peace negotiations. For USO holders, the math is unforgiving: the fund has dropped roughly 8% in five trading sessions, and the slide may not be over.
- The Strait Is Reopening, and That Changes Everything
Before the war, approximately 20% of the world's oil and liquefied natural gas passed through the Strait of Hormuz. Now that chokepoint is unclenching. Shipowners are openly transiting the waterway with active satellite signals following safety guarantees, and the IEA estimates the UAE is exporting oil at nearly 85% of pre-war levels.
Iran itself exported over 30 million barrels in the past week. Every tanker that passes safely strips another layer of risk premium from the price of every barrel USO tracks.
- A Supply Flood Meets Weakening Demand
OPEC cut its 2026 demand growth forecast to 970,000 barrels per day — the second straight downward revision — while seven nations approved a production increase of 188,000 bpd for July, the fourth monthly hike since April.
Cumulative increases since April have already exceeded 600,000 bpd. Meanwhile, the U.S. Energy Information Administration now forecasts global oil demand will decrease by 1.1 million bpd in 2026 — a dramatic reversal from its earlier growth estimate. More supply plus less demand equals lower prices, full stop.
- USO's Structural Problem Makes the Pain Worse
Investors who bought USO ten years ago to ride a long-term crude rebound are sitting on a total return of just 22.46% — the barrel moved, but the shares barely did. That's because USO holds front-month futures contracts, not physical barrels, and rolls them forward monthly — when later contracts cost more than near-term ones, the fund bleeds value with every roll. As the war premium evaporates and the futures curve flattens, that hidden drag accelerates.
- Diplomatic Progress Is Real, but Fragile
Analyst David Roche warns that current supply abundance "reflects inventory liquidation rather than a recovery in production," leaving the market vulnerable once those stockpiles are depleted.
Long-term stability still depends on protracted negotiations regarding Iran's nuclear capabilities and the secure reopening of the Strait of Hormuz. A breakdown in talks could spike crude overnight — but the trend, for now, points squarely down.