United States Oil Fund, LP (USO) Stock Price, News, Quote
The United States Oil Fund (USO) is a traded product (ETP) designed to provide investment performance that matches the daily price movements of West Texas Intermediate (WTI) light sweet crude oil. The US Crude Oil Fund is designed for short-term investors who can monitor their positions continuously and who are generous with WTI's short-term crude oil futures.
As the fund's benchmark is the WTI crude oil futures contract listed on the New York Mercantile Exchange (NYMEX), the fund may experience contango when rolling over futures contracts, which is detrimental to long-term investors.
Background
The US Oil Fund was issued on April 10, 2006 by the United States Commodity Fund. The fund's investment objective is to deliver daily investment performance in line with the daily percentage change in spot price of WTI crude oil supplied to Cushing, Oklahoma. Daily variations are measured based on the daily percentage changes in the price of WTI's Near-Month Crude Oil futures contracts traded on the NYMEX. If it is approaching two weeks before the expiry date of the first month's futures contract, the WTI crude oil future contract expiring the following month is the fund's benchmark.
While the fund primarily invests its assets in publicly traded crude oil and crude oil futures, such as natural gas futures, the fund may also invest in swap and forward contracts.
As all futures contracts have an expiry date, the US Crude Oil Fund must actively roll over its front month futures contract to a WTI crude oil futures contract that expires the following month to avoid commodity acceptance. The fund primarily has front month crude oil futures and must renew its futures monthly.1
For example, if he has WTI Crude Oil futures contracts that expire in September 2020, he must renew his contracts and purchase those that expire in October 2020.
overview
- Objective: To strive to track West Texas Intermediate (WTI) light sweet crude oil performance.
- Investment strategy: USO has nearly one month NYMEX futures contracts for WTI crude oil.
- Net assets: $ 3.1 billion (as of 6/29/2012)
- Spending rate: 0.83%
- Yield from the beginning of the year: 52%
- Launch Date: April 10, 2006
- Average daily dollar transaction size: $ 5.3 million31
Historical performance
The US Crude Oil Fund underperformed the WTI Crude Oil Spot Price and did not measure its daily performance correctly over the past five years1. to its weaker results. Crude oil prices have been quite volatile over the past two decades, rising by more than $ 140 and as low as $ 20.4
As of June 2021, the price of oil began to rise and is around $ 76 per barrel. This comes after a sharp decline during the global coronavirus epidemic, when the barrel price was around $ 19 in May 2020. the annual periods amount to 20.34%, -12.18% and -19.8%, respectively. 3
Contango Performance and Negative Roll
A contango occurs when the underlying asset's futures price is higher than the expected future spot price. As front month futures are cheaper than those that expire later, the forward curve is said to slope upwards. This results in negative rollover gains as investors will lose money selling expiring futures and buying more futures at a higher price.
Unlike contango, a pullback occurs when the underlying asset's futures price is less than the expected future spot price. Consequently, the reversal causes investors to profit from converting expiring futures to futures that expire later.5
Oil and natural gas are among commodities that have experienced long contango periods in the past. Consequently, the United States Oil Fund suffers from a negative rollover profitability when purchasing further WTI futures as the front month contract expires. In the long run, negative rollover gains add up, causing US Oil Fund investors to suffer losses. Therefore, investors planning to gain exposure to the oil market in the long term should avoid investing in the United States Oil Fund.