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

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.

6 Comments - Write a Comment

  1. 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?

  2. 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.

  3. 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.

  4. 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???

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