Over the past two years, crude is up nearly 50%; the crude etf (USO) is nearly flat over this same time period. How is this possible if USO is a physical replacement for the crude commodity? In today's Options Jive we explain the reason.
The impracticality of maintaining physical oil means the oil etf (USO) uses futures contracts to trade the price of crude. This means a roll occurs each month; the fund sells the front-month and buys the back-month.
Last year, the price of the curve was such that the further out months were much more expensive than the near month -- this created a huge drag in the roll. Right now, the drag is considerably less. This means that going forward, USO might actually begin to have some advantages.
Watch the show to hear Tom and Tony explain things in more depth.