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
