How Oil ETFs Performed amid Oil’s Fall Last Week


Dec. 4 2020, Updated 10:52 a.m. ET

Oil ETFs

Between August 31 and September 7, the United States Oil ETF (USO) fell 2.9%, the United States 12-Month Oil ETF (USL) fell 2.4%, and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) fell 5.2%. These ETFs track US crude oil futures.

US crude oil October futures fell 2.9% last week. UCO underperformed US crude oil prices during the same 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 the daily changes of the Bloomberg WTI Crude Oil Subindex.

The fall in oil prices is also a negative development for oil-weighted stocks. Oasis Petroleum (OAS), Denbury Resources (DNR), and California Resources (CRC) fell 8.8%, 9.2%, and 11.2%, respectively, last week. They were the underperformers among oil-weighted stocks.

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Long-term returns

Between February 11, 2016, and September 7, 2018, US crude oil active futures rose 158.5% from their 12-year low. During that period, oil-tracking ETFs USO, USL, and UCO rose 78.7%, 75.4%, and 135.3%, 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. In terms of the cost-of-carry model, the ETFs’ underperformances due to negative roll yields reflect the storage costs.

As of September 7, the closing price of US crude oil futures for delivery between October 2018 and September 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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