USO and UNG: Which Energy ETF Outperformed?



USO versus UNG

From October 6 to October 13, 2016, the United States Oil ETF (USO) underperformed the United States Natural Gas ETF (UNG). USO fell ~0.2%, while UNG rose ~9.8%.

UNG ended October 13, 2016, with a rise of ~3.8%. The EIA (U.S. Energy Information Administration) announced that natural gas (UNG) (FCG) inventories rose by 79 Bcf (billion cubic feet). A Wall Street Journal survey estimated a rise of 85 Bcf. The rise in the natural gas inventory was below the market’s expectation. Natural gas inventory levels have been rapidly coming back into balance. There’s a bullish tone in the natural gas market, as the winter heating season starts in a few weeks.

We already looked at the factors that led to flat US crude oil in part one of this series. USO tracks US crude oil.

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Analyzing UNG’s performance

UNG rose ~65.1% between March 3 and October 13, 2016. During that period, natural gas active futures rose 75.2%. On March 3, 2016, natural gas active futures hit 17-year lows.

Between June 20, 2014, and October 13, 2016, UNG fell ~62.2%, and natural gas active futures fell 36.6%. The nearly two-year downturn in crude oil prices started from a peak on June 20, 2014.

The above numbers also show UNG’s lower returns compared to natural gas active futures. The lower returns are due to the small losses that UNG suffered when rolling its exposure to active natural gas futures that 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 instead of 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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