Since the beginning of 2019, crude oil prices have gained nearly 36%. The sharp increase is the result of a continued restriction on supply by the Organization of the Petroleum Exporting Countries and its partners (referred to as OPEC+) and the reimposition of U.S. sanctions on Iranian exports.
Over the past 12 months, however, the price is down about 12%, for the combined price of West Texas Intermediate (WTI) and Brent. Over the past five years, WTI crude has dropped nearly 40%, from just over $100 a barrel to around $63 as of the May 20 close.
The 12-month price swing is due in large part to the positioning of non-industry speculation, primarily by hedge funds. In April of last year, the hedge funds held 15 long positions for every short position. Last week the ratio was 7.08 long positions for every short position. The following chart from Reuters analyst John Kemp presents the ratio for the past five years.
Investors wanting to take a long position in crude oil have a relatively safe way to do so by picking up shares in one or more of several exchange-traded funds (ETFs) that focus on the oil and gas sector. Here are five funds, including three leveraged funds, that seek to produce daily results that exceed underlying index results. These leveraged funds may not be suitable for investors who plan to hold a position for more than one day.
The United States Oil Fund (NYSEARCA: USO) has $1.53 billion in assets under management that tracks the daily price of WTI delivered to the storage tanks in Cushing, Oklahoma. The fund is a commodity pool and invests 100% of its assets in WTI.
The net asset value of the fund was $13.14 per share as of Monday’s close, with 116.6 million shares outstanding. The 52-week range of the shares is $9.23 to $16.24, and the fund’s expense ratio is 0.73%. The fund was created in April 2006 and has returned a negative 81.45% since its inception. Over the past 10 years, the fund’s return is a negative 12.17%.
ProShares Ultra Bloomberg Crude Oil (NYSEARCA: UCO) has assets under management of $386 million. The fund seeks results equal to two times the daily performance of the Bloomberg WTI Crude Oil Subindex. Like the United States Oil Fund, the fund invests all its assets in the commodity.
The net asset value of the fund is $23.66 per share, with 16.3 million shares outstanding. The 52-week range is $12.20 to $39.36, and the fund’s expense ratio is 0.95%. The fund was created in November 2008 and, since its inception, has returned a negative 30%. Over the past 10 years, the return has been negative 22.39%. For the year to March 31, the fund has returned 64.81%, compared to a return on the underlying index of 30.16%.
VelocityShares 3x Long Crude Oil (NYSEARCA: UWT) is an exchange-traded note (ETN) with about $357 million in assets under management. The note is issued by Citigroup Global Markets and guaranteed by Citigroup. The fund seeks to return three times the S&P GSCI Crude Oil Index ER. All the fund’s assets are invested ETNs linked to the underlying index, which is composed of futures contracts that are rolled forward at the end of the month.
The net asset value of the notes is $20.52, and 17.4 million notes are outstanding. The fund was established in December 2016. On April 20, the notes closed up 1.78%, while WTI closed up about 0.5%.
The Invesco DB Oil Fund (NYSEARCA: DBO) has about $309 million in assets under management. The fund seeks to match the performance of DBIQ Optimum Yield Crude Oil Index Excess Return. Less than 1% of the fund’s assets are invested in U.S. Treasuries and money market funds. The rest is invested in WTI crude oil futures contracts.
The net asset value of the fund was $10.88 as of May 20, and 27.8 million shares are outstanding. The fund was established in January 2007, and its return since inception is negative 5.58%. For the year to date, the fund has returned 29.9%.