ETF Spotlight on U.S. 12 Month U.S. Oil Fund (NYSEArca: USL), part of an ongoing series.
Assets: $183.19 million.
Objective: The United States 12 Month Oil Fund tries to reflect the price movements of West Texas Intermediate light, sweet crude oil (WTI).
Holdings: The fund holds 12 futures contracts on crude oil traded on the New York Mercantile Exchange, including near month contract set to expire and contracts for the following eleven months. Each of the 12 contracts will be weighted equally.
What You Should Know:
- United States Commodity Funds sponsors the fund.
- USL has an expense ratio of 0.60%.
- The fund is up 8.39% over the past month, up 9.61% over the last three months and up 1.60% year-to-date.
- “Because of market liquidity and the absence of carrying costs, using futures is in many ways a better way to invest in oil than owning the commodity directly,” according to Morningstar analyst Abraham Bailin. “The catch is that the futures curve–the prices of contracts at progressively distant expiration dates–can take an upward slope (known as contango) or downward slope (known as backwardation).”
- The pricing characteristics of futures contracts are what cause commodities ETFs to veer off from the spot price of their underlying commodities.
- During a period when commodities prices are rising, futures contracts — which obligate a buyer to purchase the commodities in the future — keep getting more expensive than the prevailing spot price, which cause the upward slope known as contango. [Commodity ETFs: Understanding Contango]
- When the futures market is in backwardation – future contracts are cheaper than contracts set to expire – ETFs profit as the funds roll contracts for later-date contracts. [Oil ETFs Get Boost from Futures Backwardation Shift]
- Since USL holds a mix of contracts, the fund significantly reduces expenses as it does not need to roll a large amount of contracts each month, compared to U.S. Oil Fund (NYSEArca: USO), which has helped the fund perform better than USO.
The Latest News:
- WTI crude oil recently traded above its $100 per barrel level.
- USL has been trading above its 200-day exponential moving average since Nov. 11.
- The oil market is currently in a state of backwardation.
- Marco Dunand, chief executive of Mercuria Energy Trading, believes the West Texas Intermediate crude oil futures price curve will remain flat, according to Arab News. However, Dunand does not believe the backwardated oil market will last.
- “There is no justification for strong backwardation in WTI given the level of oil production in North America and the level of stocks right now,” Dunand said. “We anticipate the WTI structure to be reasonably close to flat for some months.”
U.S. 12 Month U.S. Oil Fund
For past stories in this series, visit our ETF Spotlight category.
Max Chen contributed to this article.
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.