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US Crude Oil’s Gain Helped Oil ETFs

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Oil ETFs

On April 6–13, 2018, the ETFs that follow US crude oil futures had the following performances:

  • The United States Oil ETF (USO) rose 8.3%.
  • The United States 12 Month Oil ETF (USL) rose 6.4%.
  • The ProShares Ultra Bloomberg Crude Oil ETF (UCO) rose 17%.

On April 6–13, 2018, US crude oil May futures rose 8.6%. On April 13, 2018, US crude oil May futures settled at $67.39 per barrel—the highest closing level for US crude oil active futures in more than three years. We discussed the factors behind oil’s rise in Part 1.

USO holds active US crude oil futures contracts. USL holds US crude oil futures contracts’ deliverable for each of the following 12 months. UCO tracks twice the daily changes of the Bloomberg WTI Crude Oil Subindex on a daily basis.

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Long-term ETFs’ returns

Between February 11, 2016, and April 13, 2018, US crude oil active futures gained 157.1% from their 12-year low. During this period, oil-tracking ETFs USO, USL, and UCO rose 69.5%, 64%, and 125%, respectively.

These ETFs have underperformed US crude oil’s rise since February 11, 2016. The negative “roll-yield” might be behind the lower returns. A negative roll-yield is caused when expiring futures contracts’ prices are lower than the following month’s futures contracts’ prices. UCO’s actual and expected returns could be different because of the compounding effect of price changes on a daily basis.

On April 13, 2018, the closing prices of US crude oil futures contracts for delivery between May 2018 and April 2019 settled in a descending order. The price pattern will likely be positive for these ETFs.

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