Why Did USO Outperform UNG from June 16–23?



USO versus UNG

From June 16–23, 2016, the United States Oil ETF (USO) outperformed the United States Natural Gas ETF (UNG). USO rose ~7.5%, and UNG rose ~3.9%.

UNG ended June 23 with a rise of ~1.1% after the EIA (U.S. Energy Information Administration) announced a 62 Bcf (billion cubic feet) addition to natural gas (UNG) (GASL) inventory levels. Analysts expected an addition of 61 Bcf, according to S&P Global Platts.

Natural gas July futures rose 0.78% and closed on June 23 at $2.70 per MMBtu (million British thermal unit). That was 2.5% below its highest level for 2016 of $2.77 per MMBtu on June 21, 2016. UNG tracks natural gas futures.

USO tracks crude oil futures (SCO) (UCO) (UWTI). It rose as the fear of a Brexit eased on June 23, 2016. However, on June 24, US crude oil fell to $46.76, which is 6.7% below its previous session’s closing price. This followed the announcement that Britain voted to exit the European Union.

Since June 16, USO has risen along with crude oil futures. It rose 9.1% between June 16 and 23, while crude oil futures rose 8.4% over that period.

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Analyzing USO’s performance

USO rose 47.5% between February 11 and June 23, 2016. During that period, crude oil futures rose 89.7%. On February 11, crude oil futures hit their 2016 and 12-year lows.

From June 20, 2014, to date, USO has fallen about 60.1%. Crude oil futures have fallen 53.9%. The almost two-year downturn in crude oil prices started from a peak on June 20, 2014.

These numbers show USO’s low returns compared to crude oil futures. This is due to the small losses that USO suffers when the fund rolls its exposure to active crude oil futures that are at a higher price than the expiring futures contracts in the fund.

Investors can look at energy ETFs such as the Energy Select Sector SPDR ETF (XLE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) for exposure to the energy sector. They invest in oil and natural gas–weighted stocks as opposed to direct exposure to USO.

Oil-weighted stocks such as Synergy Resources (SYRG), Carrizo Oil & Gas (CRZO), Bonanza Creek Energy (BCEI), and Halcon Resources (HK) are part of XOP.

In the next part, we’ll look at XLE and hohw it has outperformed other SPDR ETFs.


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