By Tim McLaughlin

BOSTON (Reuters) – The United States Oil Fund <USO.P> was sitting on more than $700 million in unrealized losses at the end of March, several weeks before the market fully grasped the outsized role it would play in this month’s unprecedented collapse in the price of front-month oil contracts.

U.S. crude oil futures plunged to -$37.63 a barrel on April 20, the first time in history the contract traded in negative territory. Exchange-traded products like USO, along with other investors, were caught holding positions that would have required them to take delivery of crude barrels with few places to put it, leading to a panicked sell-off.

The $3 billion exchange-traded product known as USO revealed on Tuesday that it had an unrealized loss of $726 million at the end of March. USO also booked actual realized losses of $466.4 million during March, according to a filing with the U.S. Securities and Exchange Commission.

Investors, nonetheless, have piled into the fund. Net deposits have totalled more than $3 billion this month amid heavy losses, Refinitiv data show. Individual investors are in a battle with hedge funds, which are using short positions to bet on further declines in the fund.

Short interest in USO is about $94 million, up about 1% in the past week, according to analyst Ihor Dusaniwsky at S3 Partners LLC.

Analysts have questioned whether USO is an appropriate investment for retail investors, given that it makes concentrated bets on complex futures contracts. Individual investors, however, are filling a void left by pension funds, Colorado-based energy analyst Phil Verleger of PK Verleger LLC said in a research note this week.

“A drop-off in pension fund investing left many commodity futures markets to stagnate. Oil, though, continued to expand as individual investors stepped in for pension funds,” Verleger wrote in his note.

USO is now recasting its investment strategy. It is selling its position in front-month June crude futures contracts, and has been diversifying into later-dated contracts to avoid a repeat of last week’s panic.

On Wednesday, a previously announced reverse stock split went into effect, reducing outstanding shares to 185 million from about 1.5 billion. The move is designed to add liquidity while protecting shares from delisting.

Shares had been trading around $2 and risked being delisted if they fell below $1. Post-split shares were up about 6% at $18 on Wednesday, but they are still down about 80% this year.

(Reporting By Tim McLaughlin; Editing by David Goodman and Paul Simao)