On January 25–February 1, the United States Oil ETF (USO), the United States 12-Month Oil ETF (USL), and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) rose 3.4%, 2.8%, and 6.5%, 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.
Last week, USO outperformed US crude oil March futures, which rose 2.9%. Higher oil prices could support oil-weighted stocks. Whiting Petroleum (WLL), Hess (HES), and Carrizo Oil & Gas (CRZO), the strongest oil-weighted stocks, rose 2.8%, 4.8%, and 13.2%, respectively, last week.
Long-term returns and the forward curve
Between February 11, 2016, and February 1, 2019, US crude oil active futures rose 110.8% from their 12-year low. USO, USL, and UCO rose 45.5%, 49.2%, and 45.8%, 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 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 February 1, US crude oil futures for delivery between March and October 2019 closed in ascending order, which could be a negative sign for these ETFs’ returns.