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Are Energy ETFs Outperforming Crude Oil?

PART:
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Part 2
Are Energy ETFs Outperforming Crude Oil? PART 2 OF 5

How USO Fared Compared to US Crude Oil This Week

USO’s performance

From April 13–20, 2017, the United States Oil ETF (USO) fell 5.3%. In the trailing week, WTI (West Texas Intermediate) crude oil (DBO) (USL) (OIIL) June futures fell 5.4%. USO tracks WTI crude oil futures.

How USO Fared Compared to US Crude Oil This Week

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On February 11, 2016, crude oil active futures hit a 12-year low. They rose 93.5% from February 11, 2016, to April 20, 2017. During that period, USO rose ~31.9%. From June 20, 2014, to April 20, 2017, crude oil futures fell 52.7%, while USO fell ~73.2%. The almost two-year downturn in crude oil prices started from a peak on June 20, 2014.

The above numbers show USO’s lower returns compared to crude oil active futures. The fund’s lower returns have been due to the small losses it suffered while rolling its exposure from lower priced expiring crude oil futures to higher priced active crude oil futures. Due to the contango structure in the futures market, USO has underperformed crude oil.

You should keep this in mind when using USO to track moves in WTI crude oil prices. On April 20, 2017, crude oil futures contracts out to January 2018 traded at progressively higher prices.

Energy sector exposure

For exposure to the energy sector, you might want to look at energy ETFs that invest in oil and gas stocks. These ETFs could be alternatives to ETFs that offer direct exposure to energy prices such as USO. Below are some energy ETFs to consider:

  • Energy Select Sector SPDR ETF (XLE)
  • PowerShares DWA Energy Momentum ETF (PXI)
  • Vanguard Energy ETF (VDE)
  • iShares US Energy ETF (IYE)
  • Fidelity MSCI Energy ETF (FENY)
  • SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

In the next part, we’ll look at the performance of the United States Natural Gas ETF (UNG) compared to natural gas futures.

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