USO under performs
Exchange Traded Flubs
This is a FORBES article illustrating that USO under performs. Basically, it holds the current month’s future oil contracts but when those expire, they have to roll into next month’s contracts, so they start buying those. Since everyone knows exactly when USO is going to start buying the next month’s contracts AND USO is so large (representing 20% of the NYMEX trading volume), other future traders can front run them and gig them a little on the price. It would be better if they didn’t know exactly when those trades would occur. Essentially, USO starts off every month in the hole because their entry price for each month is artificially inflated and then has to hope that oil prices rise more than the amount that they’re gigged just to show a gain each month.
Maybe we should look into selling USO or replacing USO with USL, an alternative listed in the article that follows the average price of crude futures over the next 12 months’ contracts.
-Joey
Very interesting – I think the 12 month contract is more of our intention. Good research Joey, and in time for it to be on the agenda for next meeting.
http://www.marketrap.com/article/view_article/9166/watch-out-for-contango-looking-for-the-best-long-term-oil-fund-uso-oil-usl-or-dbo
Here’s another article that backs up what we were talking about with USL vs USO.