The United States Oil Fund ETF (USO) has issued all of its currently remaining registered shares and will suspend the creation of new ones, according to a regulatory filing on Tuesday.

The long oil exchange-traded fund, which is run by USCF, is suspending the issuance of new shares until it can get approval from the U.S. Securities and Exchange Commission to register an additional 4 billion shares. The request has not been declared effective yet, it added in the filing.

“As a result, USCF management is suspending the ability of the USO Authorized Purchasers to purchase new creation baskets until such time as the new USO registration statement for the additional shares has been declared effective by the SEC,” the company said in the filing. Trading of USO shares on the NYSE Arca, Inc. will not be discontinued as a result of the suspension of sales of Creation Baskets, it said.

At 10:48 a.m. in New York, USO was trading at $3.06, down 18.4% from Monday’s close and near its low for the day.

In effect, until the new shares are cleared, the oil ETF will have characteristics of a closed-end fund, with no easy way to keep its price aligned with the underlying commodity. Closed-end funds often trade as sizable discounts or premiums to the market value of their constituents since there’s no way to offset buying and selling demand in the secondary market by adjusting the supply of shares.

Normally, specialized traders known as authorized participants will sell shares of the rallying ETF and purchase the underlying securities to pocket a virtually risk-free profit. That process usually keeps the ETF’s price in lockstep with the fund’s net asset value. However, with the authorized participants no longer able to create shares, that arbitrage trade has been disrupted.

Since demand for the oil ETF has been running incredibly high, the secondary market is likely to create upward price pressure on its stock. At the same time, with no new shares being created, market makers have less incentive to purchase oil futures to exchange with the fund. The elimination of those buyers could put downward pressure on the underlying commodity offset some of the upward pressure on the stock.
John Love, president of USCF LLC, did not immediately respond to request for comment.

USO closed at a premium of roughly 8.4% to its net-asset value on Friday.

“The ETF will trade a larger premium versus its net-asset value and potentially cause a short squeeze in the short-term,” said Mohit Bajaj, director of ETFs for WallachBeth Capital.

The authorized participants “can’t buy the ETF shares at NAV,” he said. “There is no way to source shares now. You have to buy it in the open market, causing the price to ramp up higher more than what its potentially worth.”

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