Specifically, USO tracks near month crude oil futures, swapping out contracts within two weeks of expiration for the next month contract. Consequently, in a contangoed market, USO would essentially be selling low and buying high, which may cut into performance. [Positioning for an Oil ETF Rebound? Watch For Contango.]
Alternatively, the PowerShares DB Oil Fund (NYSEArca: DBO) and United States 12 Month Oil Fund (NYSEArca: USL) provide exposure to WTI oil but include a different weighting methodology to limit the negative effects of contango. DBO can include contracts as far out as 13 months and dump contracts at any point. USL, on the other hand, ladders 12 months of contracts to diminish the effects of backwardation and contango.
“Hedge funds and other money managers had cut their gross short position in the key NYMEX WTI futures and options contract to 90 million barrels earlier in October. This was down from 108 million barrels at the start of last month and from the peak of 163 million barrels in early August, according to Reuters citing CFTC data,” reports CNBC.
United States Oil Fund
