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…

People in this episode

Guest: John Love

Topics covered

• oil market
• commodity ETFs
• futures contracts
• economic return
• backwardation
• supply loss
• capital discipline

Keywords

• USO
• backwardation
• roll yield
• WTI
• futures prices
• oil scarcity
• capital discipline

Mentioned in this episode

Organizations: USCF Investments

Products: United States Oil Fund (USO)

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