USO ETF Analysis - is US Oil Fund a Good Investment - $USO | Summary and Q&A

TL;DR

The USO ETF, which tracks the price of oil using near-term contracts, may face problems in volatile oil markets due to super contango. Its expense ratio and recent rule changes also raise concerns about its long-term viability as an investment.

Key Insights

• 🦸 The USO ETF's reliance on near-term contracts makes it susceptible to extreme market conditions like super contango.
• 😥 The expense ratio of 72 basis points can eat into investor returns over time.
• 🤨 Recent rule changes attempt to address the fund's risks but raise doubts about its overall stability.
• 🛢️ Investors interested in oil may need to consider other options given the challenges and volatility surrounding the USO ETF.
• 💐 Analyzing other ETFs could provide valuable insights for investors.
• 🏅 Exploring alternative investments like gold or silver may be a wiser choice in current market conditions.
• ✋ Long-term investors with a high-risk tolerance may find opportunities for gains if oil prices recover, but the USO remains a risky investment.

Transcript

hi I'm Jimmy in this video we're gonna look at the ETF called the United States oil fund ticker symbol USO I've gotten a lot of questions about if USO is a good investment so we're first gonna look at how the fund works then we'll touch on their fees and then dive into if it could be a good investment now that the oil market is at a crazy low price... Read More

Questions & Answers

Q: How does the USO ETF track the price of oil?

The USO ETF uses near-term contracts, usually the contract expiring in the following month, to determine its holdings and track the price of oil.

Q: What is super contango and how does it affect the USO?

Super contango occurs when future contract prices for oil are significantly higher than the spot price. This creates challenges for the USO ETF as it needs to roll over its holdings at a higher price, resulting in potential losses.

Q: What impact does the expense ratio have on the USO ETF's performance?

The USO ETF has an expense ratio of 72 basis points, which can negatively impact its performance over time. This fee is deducted from the fund's assets and can erode returns.

Q: Why have recent rule changes affected the USO ETF?

Recent rule changes allow the USO ETF to own a mix of current and upcoming month contracts to mitigate risks. However, these changes have led to concerns about the fund's long-term viability and its ability to avoid liquidation.

Summary & Key Takeaways

• The USO ETF, which tracks the price of oil, uses near-term contracts to determine its holdings.

• In super contango, where future contract prices are significantly higher than the spot price, USO faces challenges in managing its holdings.

• The ETF's 72 basis point expense ratio and recent rule changes further complicate its performance and long-term prospects.