Shares of USO, the largest exchange-traded fund tracking U.S. crude oil futures, traded at $143.50 on Wednesday — down 4.34% over five sessions — after recovering Middle East crude exports deflated the geopolitical risk premium that had briefly lifted prices. Hormuz Flows Rebound and Washington Taps Emergency Oil Again — But Is USO's War Premium Really Fading?
Shares of USO slipped to $143.50, barely off Tuesday's close yet down 4.34% in five sessions, as two bearish forces collided: recovering Middle East crude shipments and a fresh U.S. decision to drain its emergency oil stockpile. For holders of the fund — which tracks front-month WTI crude futures — the question is whether the geopolitical risk that has kept oil above $89 a barrel is finally unwinding.
• Saudi Arabia Rerouted Oil Through the Strait, and Markets Noticed. Saudi flows through the Strait of Hormuz jumped to 2.58 million barrels per day in September, representing 43% of the strait's total traffic.
Saudi Aramco boosted exports via Hormuz after attacks on its East-West Pipeline halted shipments from the Red Sea port of Yanbu.
Regional exports rebounded to 12.8 million bpd in September, the highest since the start of the war. More oil physically reaching customers deflates the "shortage premium" baked into every barrel USO tracks.
• Washington Is Draining Its Emergency Oil Reserves to 44-Year Lows. On September 29, the U.S. government announced plans to draw down up to 40 million barrels from the Strategic Petroleum Reserve (SPR) to ease rising fuel prices ahead of the November midterm elections.
The SPR now sits at 283.8 million barrels, the lowest since 1983, leaving about 31 million above the congressional minimum of 252.4 million. This flood of government barrels adds short-term supply but shrinks the emergency cushion — a gamble that could backfire violently if Hormuz disruptions resume.
• Analysts See 10–15% Downside if Flows Keep Improving. Improving oil flows and better global supply could unwind risk premiums, pulling prices 10–15% below current levels.
WTI crude fell to $89.09 on September 29, down 3.79% from the previous day. For USO, a drop of that magnitude would translate to a move toward the low $120s — erasing most of the war-era gains.
• Trump's Iran Stance Keeps a Floor Under Prices. Trump rejected Iran's offer to reopen the strait, saying Tehran wanted access "because they're losing so badly."
U.S. gasoline inventories were 5.6% below the seasonal five-year average, and distillate inventories were 11.9% below. Until a ceasefire materializes, depleted inventories and unpredictable escalation risk mean the selloff has natural limits. Investors betting on further declines should remember that one drone strike can erase weeks of supply recovery overnight.