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Is USO Underperforming Crude Oil?

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USO’s performance

From April 27–May 4, 2017, the United States Oil ETF (USO) fell 7.6%. In the trailing week, WTI (West Texas Intermediate) crude oil (DBO) (USL) (OIIL) June futures fell 7%. USO tracks WTI crude oil futures.

From its 2017 high on February 23, 2017, USO has fallen 17.9%. US crude oil fell 16.4% over this period. When securities fall more than 20%, they’re technically considered to have entered a bear market.

On February 11, 2016, crude oil active futures hit a 12-year low. They rose 73.7% from February 11, 2016, to May 4, 2017. During that period, USO rose ~18.4%.

From June 20, 2014, to May 4, 2017, crude oil futures fell 57.6%, while USO fell ~75.9%. The almost two-year downturn in crude oil prices started from a peak on June 20, 2014.

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The above numbers show USO’s lower returns compared to crude oil active futures. The fund’s lower returns have been due to the small losses it suffered while rolling its exposure from lower-priced expiring crude oil futures to higher-priced active crude oil futures. Due to the contango structure in the futures market, USO has underperformed crude oil.

You should keep this in mind when using USO to track moves in WTI crude oil prices. On May 4, 2017, crude oil futures contracts out to January 2018 traded at progressively higher prices.

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 the energy sector, such as USO. Below are some energy ETFs to consider:

  • 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 the performance of the United States Natural Gas ETF (UNG) compared to natural gas futures.

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