Is USO a good way to invest long term in OIL?

[sjain100]

I'm interested in Trading Oil Long Term. I've heard investors that are bullish on Oil for the Long term should stay away from USO due to under-performance. Does it significantly under-perform?

If the under-performance is true, are there any other ETF suggestions for OIL, or USO is a decent option?

 

[niceneasy]

I was looking at that the other day and saw that most of what it owns is futures so I assume you would get killed owning this over time paying premiums to roll over and time decay....there must be some etfs that actually own equities I think this would be a better bet...

 

[never2old]

OP,simple answer IMO is a 'NO' based on a 10 year performance

https://www.stocksplithistory.com/?symbol=USO

the kicker as always 'past performance is not indicative of future results'

as a speculative buy with USO currently at~$4 a buy for a exit 10% or whatever.

will USO drop further... it could, it might, it may not.

For a 9 mth trade to make it worth while - minimum 1000 shares, consider selling a covered call ATM $4 strike price option expiring Jan 2021, will pay you approx $1.05 option premium.

$4 +$1.05 = $5.05 minus $4.22 cost = $0.83/share profit less commissions

$4.22 - $1.05 = $3.17 downside protection

 

[ducatista]

its actually a very good way to invest in oil. unfortunately, theres alot of misinformation circulating by seekingalpha /motleyfool types who dont understand a damn thing about structured products, term structure, 'roll yield' (most abused term ever), etc.

the most common one being 'uso suffers from contango decay'. it does not.

specifically, its designed to track CL futures. not spot. go plot the 2 and you'll see the difference is largely negligible. IIRC its about 30 basis points mostly due to transaction costs incurred when rolling, part of which is offset by the treasuries it holds. management fee is the other fee that drives this minuscule wedge.

as such, comparing USO to spot as commonly done is false equivalence. spot excludes any cost of storage and just reflects last trading price. however, nobody, not even producers, manufacturers, energy companies, etc, can own spot as is, because they still need a place to store the physical commodity. spot prices are largely an apparition.

future prices on the other hand come w storage already baked in. so if you want to compare uso to something, compare it to the futures that it tracks. not spot.

 

[never2old]

the most common one being 'uso suffers from contango decay'. it does not.

specifically, its designed to track CL futures. not spot. go plot the 2 and you'll see the difference is largely negligible. IIRC its about 30 basis points mostly due to transaction costs incurred when rolling, part of which is offset by the treasuries it holds. management fee is the other fee that drives this minuscule wedge.

as such, comparing USO to spot as commonly done is false equivalence. spot excludes any cost of storage and just reflects last trading price. however, nobody, not even producers, manufacturers, energy companies, etc, can own spot as is, because they still need a place to store the physical commodity. spot prices are largely an apparition.

future prices on the other hand come w storage already baked in. so if you want to compare uso to something, compare it to the futures that it tracks. not spot.

confused because I cannot get my head around the correlation & business of WTI & USO.

comparing WTI & USO price change YTD, both have dropped by the same percentage.

https://finance.yahoo.com/quote/USO/profile?p=USO

from USO profile/fund summary : "The investment seeks the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma.

USO seeks to achieve its investment objective by investing primarily in futures contracts for light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels."

that said, from what I see in each performance - how is it USO appears to track the daily performance of WTI?

 

[ducatista]

confused because I cannot get my head around the correlation & business of WTI & USO.

comparing WTI & USO price change YTD, both have dropped by the same percentage.

https://finance.yahoo.com/quote/USO/profile?p=USO

from USO profile/fund summary : "The investment seeks the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma.

USO seeks to achieve its investment objective by investing primarily in futures contracts for light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels."

that said, from what I see in each performance - how is it USO tracks the daily performance of WTI?

which part confuses you?

comparing spot to USO - if cost of storage remains unchanged, the 2 will track each other w no performance gap. if cost of storage increases (contango increases), the performance wedge will increase. if cost of storage decreases (contango decreases), performance wedge decreases.

to add some more color, cost of storage has been increasing since 2009. as such, performance wedge since then has accumulated and grown ever larger, driving the false impression of 'USO underperformance'. if storage costs were to decrease, the gap would narrow and uso would appear to 'outperform'. both scenarios are an illusion

this is comparing uso to spot, of course. uso/fut relationship will remain more or less constant

 

[murray t turtle]

I was looking at that the other day and saw that most of what it owns is futures so I assume you would get killed owning this over time paying premiums to roll over and time decay....there must be some etfs that actually own equities I think this would be a better bet...

%%
Maybe ok for a trade, but on charts you are mostly right.
XLE, ERX pay better dividends; but ERX is a penny/$1.oo ETF selling @about $10/ cause they reverse split it 10 or 12 times.
I may trade ERX again, may not; I got a nice profit off nat gas etfx3 never have traded it since...………………………………………………………………………………………….
Even worse is the RE appraiser that pretends oil is correlated with stocks; just because it may have been in past .LOL .[One oil trader said that ''oil has no earnings]]

 

[betcashrun]

If the under-performance is true, are there any other ETF suggestions for OIL, or USO is a decent option?

To avoid the asset decay in case of contango, just buy and hold USO only from the roll end to the next roll begin. For instance:
from April 14 2020 till May 4, 2020,
from May 11, 2020 till June 5, 2020 ...

 

[ducatista]

To avoid the asset decay in case of contango, just buy and hold USO only from the roll end to the next roll begin. For instance:
from April 14 2020 till May 4, 2020,
from May 11, 2020 till June 5, 2020 ...

Poor advice

 

[qwerty11]

The point of ducatista is that "contango decay" is only happening if the contango persists (which is not implied by the contango of today).