Some observers also question the integrity of the countries as some have been known to deviate from the agreements – Russia failed to respect a similar agreement with OPEC producers in the 1990s. Due to the surge in popularity, the oil-related ETFs now hold a huge stake in the energy markets. For instance, USO now makes up a quarter of all contracts for April delivery on the New York Mercantile Exchange.
USO holds WTI futures contracts in the nearby month and rolls its cash into the next month’s contracts before being forced to take physical delivery.
Since USO needs to roll contracts upon expiry, the ETF will be subject to contango issues – near month March 2016 contracts trade at $29.12 while next month April 2016 contracts trade at $31.22, according to CME Group. Consequently, more sophisticated traders may short USO and go long later-dated futures to take advantage of the arbitrage opportunity when the fund rolls its contracts. [Positioning for an Oil ETF Rebound? Watch For Contango.]
United States Oil Fund
