uploads///USO versus UNG Price Performance

USO versus UNG: Who Leads?


Aug. 12 2016, Published 1:44 p.m. ET

USO versus UNG

From August 4 to August 11, 2016, the United States Oil ETF (USO) outperformed the United States Natural Gas ETF (UNG). USO rose by ~3.7%, while UNG fell by ~9.9%.

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Why USO outperformed UNG this week

UNG ended August 11 with a fall of ~1.2% because of the EIA’s (U.S. Energy Information Administration) announcement that natural gas (UNG) (FCG) inventories had risen by 29 Bcf (billion cubic feet).

Analysts, brokers, and traders had expected a smaller addition of 21 Bcf, according to the Wall Street Journal. Bearish data and the coming end of summer have led to the current fall in natural gas prices. UNG tracks natural gas futures.

On the other hand, oil’s rally was kept alive, supported by positive news, as we discussed earlier. USO tracks crude oil futures.

Analyzing USO’s performance

USO rose by 27.7% from February 11 to August 11, 2016. During that period, crude oil futures rose by 65.9%. On February 11, US crude oil futures hit 12-year lows.

From June 20, 2014, to August 11, 2016, USO fell by ~74%, and US crude oil futures fell by 59.5%. The almost two-year downturn in crude oil prices started from a peak on June 20, 2014. The downturn lowered the sentiment in the entire energy sector.

These numbers show USO’s lower returns compared to US crude oil futures. This was due to the small losses that USO suffered when rolling its exposure to active US crude oil futures, which were higher in price than the expiring futures contracts in the fund.

For exposure to the energy sector, investors may want to look at energy ETFs that invest in oil and gas–linked stocks, instead of ETFs that offer direct exposure to energy prices such as USO or UNG.

These energy ETFs include the Energy Select Sector SPDR ETF (XLE), 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).

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


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