US crude oil ETFs performances
On September 22–29, 2017, the United States Oil Fund LP (USO) rose almost as much as US crude oil. USO rose 1.9%, while US crude oil November futures rose 2%. USO’s benchmark is US crude oil near-month futures. On the other hand, the United States 12 Month Oil Fund LP (USL) rose 1.1% during this period. USL’s objective is to track US crude oil futures contracts 12 months out starting at near-month futures contracts.
However, the ProShares Ultra Bloomberg Crude Oil ETF (UCO) rose 3.7% during this period. UCO’s objective is to generate twice the daily returns of the Bloomberg WTI Crude Oil Subindex.
Measuring performances since February 11, 2016
On February 11, 2016, US crude oil (DBO) active futures fell to their 12-year low. Since then, US oil prices recovered 97.1%. However, USO, USL, and UCO rose 30.5%, 28.5%, and 37.1%, respectively, during this period. These ETFs could have underperformed because of the negative roll yield. Apart from the roll yield, the compounding of UCO’s daily returns over longer periods could cause its performance to deviate from its targeted return this period.
The roll yield is the price difference between the two consecutive futures contracts nearest to expiry. USO and USL shift their holdings to the following month’s futures contract when the active futures contract expiry is within two weeks. So, when the expiring contracts are priced lower than the next month’s contracts, these funds incur losses. In this case, the roll yield would be negative.
On September 29, 2017, US crude oil futures contracts out to March 2018 settled at progressively higher prices.
In the next part, we’ll discuss the price performance of natural gas futures and the United States Natural Gas Fund LP (UNG).