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USO versus UNG: Which Energy Commodity ETF Leads This Week?


Aug. 5 2016, Published 3:06 p.m. ET

USO versus UNG

From July 28 to August 4, 2016, the United States Oil ETF (USO) outperformed the United States Natural Gas ETF (UNG). USO rose by ~1.7%, while UNG fell by ~1%.

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Why USO outperformed UNG this week

UNG ended August 4 with a fall of ~0.6% despite the EIA’s (U.S. Energy Information Administration) announcement that natural gas (UNG) (FCG) inventories fell by 6 Bcf (billion cubic feet).

Analysts expected a slight addition to inventory, according to a report by the Wall Street Journal. The bullish data was undone by bearish market sentiment surrounding the coming end of the summer. UNG tracks natural gas futures.

On the other hand, oil’s rally was kept alive, supported by the drop in gasoline inventories. Factors responsible for oil’s rally were already discussed in Part 1 of this series. USO tracks crude oil futures.

Analyzing USO’s performance

USO rose by 23.1% from February 11 to August 4, 2016. During that period, crude oil futures rose by 57.3%. On February 11, US crude oil futures hit 12-year lows.

From June 20, 2014, to August 4, 2016, USO has fallen ~75%. US crude oil futures have fallen by 60.9%. The almost two-year downturn in crude oil prices started from a peak on June 20, 2014. This lowered the sentiment in the entire energy sector.

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

Investors can look at energy stock ETFs for exposure to the energy sector. The ETFs invest in oil and oil-weighted stocks, instead of ETFs that offer direct exposure to energy prices like USO or UNG.

These energy ETFs include the Energy Select Sector SPDR ETF (XLE), the ProShares Ultra Oil & Gas ETF (DIG), the PowerShares DWA Energy Momentum ETF (PXI), the Vanguard Energy ETF (VDE), the iShares US Energy ETF (IYE), the Fidelity MSCI Energy ETF (FENY), and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

Oil-weighted stocks such as Concho Resources (CXO), Bill Barrett (BBG), Northern Oil & Gas (NOG), Oasis Petroleum (OAS), Abraxas Petroleum (AXAS), Halcon Resources (HK), Synergy Resources (SYRG), and Kosmos Energy (KOS) are part of XOP.

In the next part, we’ll look at XLE’s performance compared to other SPDR ETFs.


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