Oil ETF (USO) as Oil Aproaches $70 a Barrel

April 13, 2006 at 1:21 am by Tom Lydon      Bookmark and Share

Scales Political turmoil in Iran and Nigeria along with news of a drop in the gasoline inventory, has helped keep oil and gas prices up.  Oil is trading in the $68 – $70/barrel range and the average price for gasoline is $2.695/gallon.  On Monday, the first oil exchange traded fund began trading on the American Stock Exchange.  The United States Oil Fund (USO) is an ETF structured like a commodity pool and invests in oil futures contracts.

Like other ETFs, USO can be used as a hedge, in this case, a hedge against the gas price.  If you purchase USO and the price of oil continues to rise, then the value of your shares of USO rise.  At the same time the price you pay to fill your car goes up, but this cost is offset by the increased value of your USO holding.

If the price of oil goes down, then the value of your shares of USO would decline, but you would pay less at the gas pump, so in this scenario too, you could come out even if you calculate wisely.

Share this post:
  • E-mail this story to a friend!
  • Yahoo! Buzz
  • Digg
  • del.icio.us
  • Tipd
  • Reddit
  • StumbleUpon
  • Facebook
  • Technorati
  • Google Bookmarks
  • TwitThis

Tags: , ,

China ETF (FXI) Has Had Good Fortune
New ETF Tracks IPOs (FPX)

Find more articles in the Archives...

Subscribe to Our Daily E-mail Newsletter

Enter your e-mail address below to sign up for our daily e-mail newsletter, the Daily Market Update. We will never share your e-mail address with third parties.

Subscribe to Our RSS Feed

Click here to subscribe to our RSS feed

  • Yes USO is a great tool for small hedgers.

    It will be interesting to see what is going to happen the next time crude will make a new high.
  • Hi Tom,
    Maybe I'm a moron, but I just don't understand this USO product for the life of me. Who on earth is this designed for?

    If you want to speculate on oil in the short-term, get yourself a futures account and do it the right way, like a REAL trader would. Is it risky? Of course! But you don't have the stomach for it, you shouldn't be fooling around with a futures-based ETF either.

    And if you're a long-term oil bull, you have plenty of great oil companies all over the world to choose from that are flush with more cash than they know what to do with.

    This USO product just seems like a half-baked alternative for people who don't really know where they stand on things, which is a recipe for disaster in investing and suicide in trading.

    The whole thing also smacks of marketing hype and a possible top in the price of crude if you ask me. Where was this product when oil was 10 bucks?
  • Joan Hart
    USO has been pitched as a Crude Oil ETF - it is a SHAM and a RIP-OFF. Investors have watched in horror as USO has dropped at the rate of $1.50 for every decline of $1.00 in crude oil. There's nothing an investor can do when they are ripped off. These EFTs can say anything they want. They just make it up.
  • paul
    USO has worked well for me, it's a solid follower of the Oil price and easy to lock in and out of.
  • ab
    The USO ETF is NOT a "solid follower" of the oil index.
    It has only gained 16% from the recent bottom, wheras crude has gained 30% !!! This product is one of the worst products ever to have been brought on the market. it should be closed down,and Eric Bolling (of fast Money) should have more braines than to be telling people to buy it as oil is going up. It is pure suicide to play this underperforming product. If you do play it,use it to offset some tax gains, because your chances of winning with this are very limited.
  • YES
    If there is any fraud ETF, USO must be the one. Last year when crude oil was about $70 a barrel, USO was over $70. Now crude oil is back to $71 but USO is only 2/3 of it - $52. What kind of ETF is it???
blog comments powered by Disqus

Recent TV Appearances


Now Available:

The ETF Trend
Following Playbook

ETF Trends' new book is now available. Click here for details. Or order online from one of these bookstores:
Amazon        Barnes and Noble


Forum Latest Discussions
    • MMENZINGER: RELEVANT !!
    • james321: Yes, one day soon the etf market will collapse as people realise that etf's have been way oversold...
    • ralph: Matt needs to know that “niche” s/be pronounced “nitch.”
    • Brian: Tom, are you working for J P Morgan or Chase? The SLV does not have the silver you claim. If it is not in your...
    • Tom Lydon: I like that idea! It's definitely a hole that needs to be filled.

Recent Podcasts

iMoney

ETF Trends' book iMoney is available. Click here for details. Or order online from one of these bookstores:
Amazon        Amazon

Categories

Monthly Archives