USO death by contango (Part 1 of 2)

Relevant links attached to part 2 Transcript of the videos (two parts) follows, but shortened as youtube don’t have the space 😉 USO (United States Oil) is an etf, exchange traded fund, which uses futures contracts to track the price of oil. Let’s say that I buy futures contracts for oil, with March expiry, at a price of . This gives me the right to take delivery of crude oil at that price when the contract expires. NYMEX Crude oil futures quotes Now, USO doesn’t have the facilities or inclination to take delivery of oil. Neither do I. Neither do the majority of traders in oil futures. Many are settled for cash instead of oil. The method used by USO, and other similar funds such as OIL, to keep a continuing position in the oil price is to ‘roll out’ the contracts to the next month when the current contract is close to its expiry date. This sounds complex, but it isn’t. So, that contract to buy oil at in March we talked about might be worth, say, when we come to roll it out, as short term oil prices are volatile and there have been many bounces and false starts along the way during oil’s incredible collapse since July of last year. So, you know, to , – perfectly feasible. Great, that’s a profit for the USO fund. So far so good. However, there is a point I would like to explain in detail for you as it is little understood by most investors currently buying USO in hopes of timing a bottom in oil. The thorn in USO’s side goes by
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6 thoughts on “USO death by contango (Part 1 of 2)

  1. “a steep contango… is killing USO’s value as a proxy for long oil at the moment. Some days oil will go up, and USO will hardly move”

    can someone clarify this for me? specifically I am tripping over the point: how can “oil” “go up” and USO be uneffected?

  2. dont take this down lol, unless ur going to add more info, very good information 5*

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