Are Oil ETFs Outperforming US Crude Oil?



Oil ETFs

On April 27–May 4, the ETFs that follow US crude oil futures had the following performances:

  • The United States Oil ETF (USO) rose 2.6%.
  • The United States 12 Month Oil ETF (USL) rose 2.5%.
  • The ProShares Ultra Bloomberg Crude Oil ETF (UCO) rose 4.8%.

On April 27–May 4, US crude oil June futures rose 2.4%. We discussed the factors behind oil’s moves in Part 1. These ETFs outperformed US crude oil during this period.

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.

Last week, California Resources (CRC) rose 28.8%—the largest gainer. Murphy Oil (MUR) fell 2.8%—the biggest loss on our list of oil-weighted stocks.

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Long-term ETFs’ returns

Between February 11, 2016, and May 4, 2018, US crude oil active futures rose 166% from their 12-year low. During this period, oil-tracking ETFs USO, USL, and UCO rose 76.3%, 71.7%, and 143.5%, 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 also be different because of the compounding effect of price changes on a daily basis.

On May 4, the closing prices of US crude oil futures contracts for delivery between June 2018 and May 2019 settled in a descending order. The price pattern will likely be positive for these ETFs.


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