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How Are Oil ETFs Performing amid Oil’s Fall?

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Oil ETFs

Between February 2 and February 9, 2018, the United States Oil ETF (USO) fell 9%—50 basis points fewer than the fall in US crude oil March futures during the same period. USO tracks US crude oil active futures.

The United States 12 Month Oil ETF (USL) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) fell 8.1% and 17.5%, respectively, in the week ended February 9, 2018. These ETFs also track US crude oil futures movements. The price fluctuations of crude oil futures contracts for delivery until February 2019 will affect USO. UCO fell 1.5 percentage points more than twice the fall of US crude oil futures, twice replicating the changes in the Bloomberg WTI (West Texas Intermediate) Crude Oil Subindex.

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ETF returns

Between February 11, 2016, and February 9, 2018, US crude oil active futures rose 125.9% from their 12-year low. Oil ETFs’ performances between these two dates were as follows:

  • USO: 48.4%
  • USL: 43.4%
  • UCO: 73.7%

These ETFs underperformed US crude oil prices due to rollover expenses, or a negative “roll-yield.” If expiring futures are below the following month’s futures, an extra cost will be added during the rollover. However, on February 9, 2018, US crude oil futures were priced in a descending pattern until February 2019.

UCO’s actual returns and its expected returns could also be different because of the compounding effect of daily price changes.

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