US Crude Oil Trades above $52: Is USO Tracking Its Gains?


Apr. 7 2017, Published 7:56 a.m. ET

USO’s performance

From March 30 to April 6, 2017, the United States Oil ETF (USO) rose 2.7%. In the trailing week, WTI (West Texas Intermediate) crude oil (DBO) (USL) (OIIL) May futures rose 2.7%. USO tracks active crude oil futures. Last week, both crude oil and USO performed the same. On April 7, 2017, at 2:13 AM EST, US crude oil (OIIL) May futures were trading at $52.34 per barrel—as we discussed it in Part 1 of this series.

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Does USO track crude oil futures well?

On February 11, 2016, crude oil active futures hit a 12-year low. They gained 97.3% from February 11, 2016, to April 6, 2017. During that period, USO rose ~35.9%. From June 20, 2014, to April 6, 2017, crude oil active futures fell 51.8%, while USO fell ~72.4%. 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 fund’s lower returns have been due to small losses it suffered while rolling its exposure from expiring to active crude oil futures. Due to the “contango” structure in the futures market, USO underperformed crude oil for the past few years.

Energy sector exposure

For exposure to the energy sector, you might want to look at energy ETFs that invest in oil and gas stocks. These ETFs could be alternatives to ETFs that offer direct exposure to energy prices such as USO. Some energy ETFs to consider 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)
  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

In the next part, we’ll look at UNG’s performance compared to natural gas futures.


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