Following our last post in which we mentioned how commodities were down in 2010 based on energy being flat and the problem of cost of carry/contango – we had a client asking us to update our chart on the spot price of Crude Oil versus the performance of USO, the ETF which is supposed to track Crude Oil prices, and thought you might like to see it as well (read it and weep below)

Have any of the investors who have poured $1.8 Billion into this ETF seen this chart? Have the managers of USO? How is this acceptable for a product which is supposed to appreciate as Crude Oil does? If you can answer any of these, you are smarter than us, as we have no good answers.  Perhaps people just want to say they are invested in Oil, instead of actually being invested in oil.

Now, there is the cost of carry to consider, which makes the spot price appreciation unattainable – but even that doesn’t account for the vast difference between the spot price performance and the USO.  When considering the cost of carry by deducting a $1 per barrel monthly cost, the spot price has still outpaced the USO by a margin of  46% to 3%.

If any of the USO managers are out there and reading this, why don’t you switch to buying the December Crude Oil futures every year, and roll those annually. You can see in the chart below that this tracks much, much better with the cost of carry adjusted spot price of Oil.  Better yet – if any USO investors are reading this, call Attain and we’ll set up your own personal ETF which does just this, rolling every December.