Oil Collapse Highlights ETF Differences

October 15, 2014

There’s nothing short of spectacular in oil’s price decline, but different ETF approaches to oil are delivering very different results.

Crude oil prices are plummeting this week, accelerating a steep downward trajectory that took hold this summer, thanks to an abundance of supplies that’s met by weakening global demand. This supply/demand imbalance has pushed WTI crude and the global benchmark Brent to multiyear lows in a decline that is showing no signs of stopping.

A day after WTI fell an additional 4.5 percent on Tuesday, and Brent nearly as much, both benchmarks fell further this morning. WTI was down an additional 2 percent to just above $80 a barrel, while Brent lost 1.4 percent to fall under $84. Both are down more than 20 percent since their peak this year in June.

From an ETF perspective, funds that tap into oil via the futures markets offer as close a proxy to the spot oil prices as you can get in an ETF wrapper. The biggest and most liquid of such funds, the United States Oil (USO | A-70), is a great proxy to the extent that it invests in nearby Nymex WTI crude, and the front end of the futures curve is the most sensitive to the “here and now.”

USO has now dropped more than 20 percent since July 1, putting year-to-date losses around 12.6 percent.

Similarly, the United States Brent Oil Fund (BNO | B-76), which offers exposure to Brent oil, has slipped more than 23.9 percent year-to-date, as its nearby futures contract focus puts it in the frontlines of Brent’s plummeting prices.

OIL_ETFs_YTD_Perf

 

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