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Did Oil ETFs Rise Faster Than US Crude Oil Last Week?

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Nov. 20 2020, Updated 2:02 p.m. ET

Oil ETFs

From June 15 to June 22, the ETFs that track US crude oil futures had the following performances:

  • United States Oil ETF (USO): rose 7.4%
  • United States 12 Month Oil ETF (USL): rose 4.9%
  • ProShares Ultra Bloomberg Crude Oil ETF (UCO): rose 12.9%

US crude oil August futures rose 5.8% last week, as we saw in Part 1 of this series. These three oil ETFs underperformed US crude oil last week.

USO holds active US crude oil futures contracts, while 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. Between June 15 and June 22, 2018, USO and UCO rose faster than US crude oil prices.

Last week, Denbury Resources (DNR) and California Resources (CRC) rose 23.6% and 21.8%, respectively, the most on our list of oil-weighted stocks.

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Returns of long-term ETFs

Between February 11, 2016, and June 22, 2018, US crude oil active futures rose 161.7% from their 12-year low. During that period, oil-tracking ETFs USO, USL, and UCO rose 75.4%, 70.4%, and 133.7%, respectively.

These ETFs have underperformed US crude oil since February 11, 2016. The negative roll-yield could be behind the lower returns. A negative roll-yield is caused when expiring futures contract prices are lower than the following month’s futures contract prices.

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

As of June 22, 2018, the closing prices of US crude oil futures for delivery between August 2018 and July 2019 settled in descending order. The price pattern could be positive for these ETFs.

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