Did Oil ETFs Outperform US Crude Oil Last Week?


Nov. 20 2020, Updated 3:50 p.m. ET

Oil ETFs

On May 11–18, the ETFs that follow US crude oil futures had the following performances:

  • The United States Oil ETF (USO) rose 1.3%.
  • The United States 12 Month Oil ETF (USL) rose 0.8%.
  • The ProShares Ultra Bloomberg Crude Oil ETF (UCO) rose 2.5%.

On May 11–18, US crude oil July futures rose 1%. We discussed the factors behind oil’s moves 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.

Last week, Whiting Petroleum (WLL) rose 11.7%—the largest gainer on our list of oil-weighted stocks. Callon Petroleum (CPE) fell 2.4%—the only stock that saw losses on our list of oil-weighted stocks during this period.

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Long-term ETFs’ returns

Between February 11, 2016, and May 18, 2018, US crude oil active futures rose 172% from their 12-year low. During this period, oil-tracking ETFs USO, USL, and UCO rose 80.5%, 77.5%, and 155.8%, 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 18, the closing prices of US crude oil futures contracts for delivery between July 2018 and June 2019 settled in a descending order. The price pattern will likely be positive for these ETFs.


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