Why the USO oil ETF is a better buy than crude futures as the Iran war rages
The United States Oil Fund has climbed by 58% since the start of the Iran war, more than double the gain of WTI crude futures.
The USO oil ETF has outperformed WTI crude futures since the start of the Iran war, with a 58% gain compared to the 28% gain of crude futures. This divergence in performance is notable, as one might expect the price of the underlying asset - in this case, crude oil - to move in tandem with an ETF designed to track its price. However, the USO ETF's structure, which uses futures contracts to achieve its investment objective, can sometimes result in differences in performance.
The USO ETF's outperformance may be attributed to its ability to provide investors with exposure to crude oil prices while mitigating some of the risks associated with direct futures investing, such as contango. Contango occurs when longer-dated futures contracts are more expensive than near-dated contracts, resulting in losses for investors who roll their futures contracts. By using a fund structure, USO can manage these risks and provide a more efficient way for investors to gain exposure to crude oil prices.
Looking ahead, investors will be watching to see if the USO ETF can continue to outperform crude futures as the situation in Iran evolves. With ongoing geopolitical tensions and potential disruptions to oil supplies, crude oil prices are likely to remain volatile. Investors should keep an eye on the USO ETF's performance, as well as developments in the Iran conflict, to gauge the potential for further gains or losses in the fund.
Originally reported by marketwatch.com. FundNews adds analysis for finance & markets readers.