Comparing the Fall in Oil ETFs and Oil Last Week



Oil ETFs

On August 3–10, the United States Oil ETF (USO) fell 1.3%, the United States 12-Month Oil ETF (USL) fell 0.5%, and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) fell 2.8%. These ETFs track US crude oil futures.

US crude oil September futures fell 1.3% last week. UCO underperformed US crude oil prices during this period. However, USL fell less than US crude oil’s decline during this period.

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.

The fall in oil prices is also a negative development for oil-weighted stocks. WPX Energy (WPX), Apache (APA), and Hess (HES) fell 1.8%, 2.2%, and 3.1%, respectively, last week. They were the underperformers among oil-weighted stocks.

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Long-term returns

Between February 11, 2016, and August 10, 2018, US crude oil active futures rose 158% from their 12-year low. During that period, oil-tracking ETFs USO, USL, and UCO rose 76.2%, 72.2%, and 128.5%, respectively.

These ETFs have underperformed US crude oil since February 11, 2016. The negative roll yield might have caused the lower returns. A negative roll yield occurs 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 due to the compounding effects of price changes on a daily basis.

As of August 10, the closing price of US crude oil futures for delivery between September 2018 and August 2019 settled in descending order. The price pattern could be positive for these ETFs’ returns compared to crude oil’s returns.


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