Oil And NatGas ETFs Buck Seasonal Trend

July 23, 2014

USO, BNO Performance Far Cry From Year-Earlier Gains

Funds like the United States Oil Fund (USO | A-100) and the United States Brent Oil (BNO | 64) have struggled to find upside momentum. The two funds, which compete in a segment populated by at least nine ETFs, invest in near-month WTI crude oil futures contracts, and nearby Brent oil futures, respectively. That makes them a good, if imperfect, proxy for spot oil prices in ETF wrappers.

In the past three months, USO raced higher just to retrace its steps completely in recent weeks. In all, the fund has managed to capture total returns of only 2.5 percent in the three-month period—a relatively weak performance given the season.

BNO has actually delivered a negative performance in the period, as the chart below shows. At the end of the day, while Libya weighs on both oil markets, WTI continues to benefit from tight supplies in Cushing, the delivery point for Nymex-traded oil futures contracts.

“The markets at long last are reflecting the tightness at Cushing,” said Andy Lebow, senior vice president for energy at Jefferies Bache LLC, referring to the narrowing of the WTI-Brent spread. “It doesn’t appear as if the tightness at Cushing is going to be alleviated anytime in the next few weeks.”


By comparison, in the same three-month period a year earlier, USO rallied nearly 21 percent, while BNO tacked on gains of roughly 10 percent between mid-April and mid-July 2013. That’s a far cry from the unimpressive gains investors have seen so far this summer.

Still, assets are flowing into these funds. Both USO and BNO have managed to attract fresh net assets in the past three months—$159 million and $31 million, respectively.


Charts courtesy of StockCharts.com


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