USO versus UNG: Which Energy Commodity ETF Outperformed?



USO versus UNG

From October 13 to October 20, 2016, the United States Oil ETF (USO) outperformed the United States Natural Gas ETF (UNG). USO fell ~0.5% and UNG fell ~3.6%.

UNG ended October 20, 2016, with a fall of ~0.2%. The EIA (U.S. Energy Information Administration) announced that natural gas (FCG) inventories increased by 77 Bcf (billion cubic feet). A Wall Street Journal survey estimated a rise of 73 Bcf.

The rise in the natural gas inventory was above the market’s expectation. Natural gas inventory levels rapidly coming back into balance had been pushing prices higher in the past few months. So, the rise in inventories above market expectations led to a bearish tone in the natural gas market.

We already looked at the factors that drove US crude oil prices in Part 1 of this series. USO tracks US crude oil.

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Analyzing USO’s performance

The United States Oil ETF (USO) rose ~43% between February 11, 2016 and October 20, 2016. During that period, crude oil active futures rose 93.2%. On February 11, 2016, crude oil active futures hit 12-year lows.

Between June 20, 2014, and October 20, 2016, USO fell ~70.9% and crude oil futures fell 52.8%. The nearly 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 lower returns are due to the small losses that USO suffered when rolling its exposure to active crude oil futures. These futures were higher in price than the expiring futures contracts in the fund.

Energy sector exposure

For exposure to the energy sector, you might also want to look at energy ETFs that invest in oil and gas stocks, which could present an alternative to ETFs that offer direct exposure to energy prices such as USO and UNG. These energy ETFs include the following:

  • 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)
  • The SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

We discussed the returns of some energy ETFs in the previous part of this series. In the next part, we’ll look at XLE’s performance compared to other SPDR ETFs.


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