Did Oil-Tracking ETFs Underperform Oil Last Week?


Nov. 20 2020, Updated 10:55 a.m. ET

Oil-tracking ETFs

Between January 11 and January 18, the United States Oil ETF (USO), the United States 12-Month Oil ETF (USL), and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) rose 3.8%, 2.6%, and 7.4%, respectively. These ETFs track US crude oil futures.

USO holds active US crude oil futures, while USL holds US crude oil futures deliverable for each of the next 12 months. UCO tracks daily changes in the Bloomberg WTI Crude Oil Subindex.

USO and USL underperformed US crude oil March futures, which rose 4.1% last week. Higher oil prices can boost oil-weighted stocks. California Resources (CRC), Oasis Petroleum (OAS), and Whiting Petroleum (WLL), the strongest oil-weighted stocks, rose 6.6%, 7.1%, and 8.5%, respectively, last week.

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Long-term returns and the forward curve

Between February 11, 2016, and January 18, 2019, US crude oil active futures rose 105.3% from their 12-year low. USO, USL, and UCO rose 41.5%, 45.4%, and 38.8%, respectively.

A negative roll yield, which occurs when expiring futures contract prices are lower than the following month’s futures contract prices, may have caused these lower returns. UCO’s actual and expected returns could also be different due to daily price changes.

In a cost-of-carry model, ETFs’ underperformances due to negative roll yields reflect storage costs. On January 18, US crude oil futures for delivery between February and October 2019 closed in ascending order, which could be a negative sign for these ETFs’ returns.


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