Crude oil and related exchange traded funds and products have languished recently, with crude trading at more than a one year low on Tuesday of this week.
On Wednesday, crude however was well bid throughout the day and related ETFs traded higher than average volumes.
U.S. Oil Fund (NYSEArca: USO) remains the giant in the space, with about $1.2 billion in assets under management, and average trading volume well over 12 million shares per day. However, many have criticized USO’s methodology in that it invests in crude oil futures in such a way that the fund can be negatively impacted by an environment of contango in the futures market itself. [Understanding Contango]
U.S. 12 Month Oil Fund (NYSEArca: USL) was designed to mitigate the effects of contango by taking a weighted blend of 12 futures contracts across the calendar as opposed to simply owning front month oil futures and then rolling them once per month (as in USO). Since inception in late 2007, USL is down 32.39% versus USO’s return of -57.32% during the same time period, so it is evident that USL’s methodology provides some alleviation of the negative effects of contango.
PowerShares DB Oil Fund (NYSEArca: DBO) is also a player in the space and invests in futures contracts on WTI Crude Oil based on a rules based index.
The iPath S&P GSCI Crude Oil (NYSEArca: OIL) is an exchange traded note that tracks the S&P GSCI Crude Oil Total Return Index, and obviously has different implications in investor portfolios simply due to its ETN structure whereas the products mentioned above are ETFs.
Additionally, U.S. Brent Oil (NYSEArca: BNO) provides unique exposure to changes in Brent crude oil via a futures structure.
Two newer funds to the oil space are Teucrium WTI Crude Oil ETF (NYSEArca: CRUD), which listed in February of this year and invests in Nymex light sweet crude futures, as well as iPath Pure Beta Crude Oil (NYSEArca: OLEM), which tracks a WTI Crude based index and aims to also mitigate the potential effects of contango by not following a pre-determined roll schedule.
As noted, crude oil funds have fallen rather sharply year to date, and all are trading notably below both their 50 and 200 day moving averages. However, the recent bounce from the lows on good volumes suggest that some institutional investors may be looking for an opportunity to go long in the commodity heading into year’s end.
From a year to date standpoint, the performance in the funds mentioned is as follows: BNO, +10.33%, DBO -17.60%, USL -17.69%, USO -20.92%, and OIL -21.62% (we have excluded CRUD and OLEM since both funds debuted after the first of the year in 2011).
U.S. Brent Oil
Chart source: StockCharts.com.
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