On November 2–9, the United States Oil ETF (USO) and the United States 12-Month Oil ETF (USL) fell 4.6% and 3.8%, respectively. The ProShares Ultra Bloomberg Crude Oil ETF (UCO) fell 9%. These ETFs track US crude oil futures.
US crude oil December futures fell 4.7% 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. Concho Resources (CXO), Oasis Petroleum (OAS), and Denbury Resources (DNR), the weakest among the oil-weighted stocks, fell 3.2%, 5.2%, and 9.8%, respectively, last week.
Between February 11, 2016, and November 9, 2018, US crude oil active futures rose 129.6% from their 12-year low. Meanwhile, oil-tracking ETFs USO, USL, and UCO rose 58.9%, 62.3%, and 84.9%, 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.
As of November 9, US crude oil futures for delivery between December 2018 and December 2019 closed in ascending order, which could be a negative sign for these ETFs’ returns.