Oil ETF (USO) as Oil Aproaches $70 a Barrel
April 13th 2006 at 1:21am by Tom Lydon
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.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.