Record Backwardation: Understanding the Economic Return of USO in the Midst of a Global Supply Loss
About this episode
John Love discusses the United States Oil Fund and the implications of current market conditions.
John Love, the CEO of USCF Investments, joins the podcast to celebrate the 20th anniversary of the United States Oil Fund (USO), which was the third commodity ETF ever launched. He explains that unlike physical gold funds, USO provides investors with access to the oil market by holding futures contracts, effectively "equitizing" a complex asset class that would otherwise require managing margin calls and rolling positions. A key distinction Love makes is that USO is designed to track the daily economic return of its underlying contracts, not the long-term spot price of oil, meaning its performance is heavily influenced by the "roll yield". The conversation addresses the current record backwardation in WTI, which recently saw prompt spreads hit $15 a barrel, a historic level of physical scarcity driven by the ongoing Hormuz energy crisis. This volatility is compared to the "uncharted territory" of April 2020, when futures prices plummeted to negative $37, forcing the fund to temporarily shift from a front-month strategy to a multi-contract basket to ensure stability. Finally, while there is political pressure for "drill, baby, drill" in the…
More episodes of Oil Ground Up
- Amena Bakr on the Market Blindness to the 13 Million Barrel Shock
- Paper vs Physical: Inside Oil’s $30 Backwardation Shock with Veteran Trader Adi Imsirovic
- Brutal Barrel Math: The Destruction of 10+ Million Barrels a Day Demand
- An End to the Carter Doctrine? - What it would Mean if US Left the War While the Strait is Still Shut?
- Why There is No Off-Ramp for Trump’s Gulf War
Explore listener stats, chart rankings, contacts and more on the Oil Ground Up podcast page.