In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.
Let’s take a look.
1. Betting on crude not as easy as it seems
(Click to enlarge)
- Oil prices have doubled from their lows in February, when oil dropped to $27 per barrel. Savvy investors could have made a fortune if they timed their positions correctly.
- But profiting from oil prices is not as straightforward as one might think. The U.S. Oil Fund (USO), an ETF that tracks WTI prices, saw an influx of $3 billion over the past two years as investors tried to profit from movements in oil prices.
- However, while WTI gained nearly 50 percent in 2016, the U.S. Oil Fund only gained 6.6 percent. If the fund tracks WTI, what explains that disparity?
- The market contango is to blame, a situation in which front-month futures prices trade at a discount to futures further out. The USO fund holds front-month contracts, so at the end of each month the fund needs to purchase new contracts, eroding the fund’s overall returns over time. So while oil prices rose throughout the year, USO hardly gained at all.
- An easier route could be investing in energy companies themselves, rather than trying to find exposure to commodity prices. The Standard and Poor’s 500 Energy Index,…