Analyzing Oil ETFs’ Returns Last Week


Nov. 20 2020, Updated 3:32 p.m. ET

Oil ETFs

On November 16–23, the United States Oil ETF (USO) and the United States 12-Month Oil ETF (USL) fell 10.3% and 9.9%, respectively. The ProShares Ultra Bloomberg Crude Oil ETF (UCO) fell 19.9%. These ETFs track US crude oil futures.

US crude oil January futures fell 11% last week. USO and USL outperformed US crude oil’s decline. USO holds active US crude oil futures, while USL holds US crude oil futures’ deliverable for each of the following 12 months. UCO tracks twice the daily changes of the Bloomberg WTI Crude Oil Subindex.

A fall in oil prices could be a concern for oil-weighted stocks. Oasis Petroleum (OAS), Whiting Petroleum (WLL), and Denbury Resources (DNR), the weakest among the oil-weighted stocks, fell 9.7%, 13.1%, and 15.1%, respectively, last week.

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Long-term returns

Between February 11, 2016, and November 23, 2018, US crude oil active futures rose 92.4% from their 12-year low. Meanwhile, oil-tracking ETFs USO, USL, and UCO rose 35.5%, 38.4%, and 32.8%, respectively. A negative roll yield, which occurs when expiring futures’ contract prices are lower than the following month’s futures contract prices, might have caused the lower returns. UCO’s actual and expected returns could also be different due to daily price changes. In a cost-of-carry model, ETFs’ underperformance due to negative roll yields reflects storage costs.

Forward curve

As of November 23, US crude oil futures for delivery between January 2019 and June 2020 closed in ascending order, which could be a negative sign for these ETFs’ returns.


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