Oil-tracking ETFs

On November 30–December 7, the United States Oil ETF (USO) and the United States 12-Month Oil ETF (USL) rose 3.5% and 4.6%, respectively. The ProShares Ultra Bloomberg Crude Oil ETF (UCO) rose 6.7%. These ETFs track US crude oil futures.

Did Oil-Tracking ETFs Outperform Oil Last Week?

US crude oil January futures rose 3.3% last week. USO and USL outperformed US crude oil prices. 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 rise in oil prices could have a positive impact on oil-weighted stocks. Denbury Resources (DNR), Whiting Petroleum (WLL), and EOG Resources (EOG), the strongest among the oil-weighted stocks, returned -1.3%, -1.2%, and 0.3%, respectively, last week. The remaining oil-weighted stocks ended in the red.

Long-term returns

Between February 11, 2016, and December 7, 2018, US crude oil active futures rose 100.7% from their 12-year low. Oil-tracking ETFs USO, USL, and UCO rose 39%, 43%, and 37.8%, 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’ under-performance due to negative roll yields reflects storage costs.

Forward curve

As of December 7, US crude oil futures for delivery between January and December 2019 closed in ascending order, which could be a negative sign for these ETFs’ returns.

Latest articles

Marathon Petroleum (MPC) stock has been tumbling in Q3, driven by geopolitical tensions, oil price uncertainty, and weaker refining conditions.

This week, AT&T CEO Randall Stephenson noted that AT&T (T) is on track to reduce its leverage multiple to about 2.5x by the end of this year.

Jeff Bezos announced that Amazon had placed an order of 100,000 electric delivery vans from Michigan-based startup Rivian.

Bad news on the trade war front appears to have led to a fall in the broader US equity markets today. Cannabis ETFs were also trading in the red.

Energy Transfer (ET) stock has recovered in the last two trading sessions after investors hammered it on its plans to acquire SemGroup (SEMG).

Software-as-a-service company Datadog (DDOG) made a smashing debut on Wall Street yesterday. After its IPO, DDOG's shares surged 40% in intraday trading.