Conclusion - USO is crap

A very interesting discussion thread on USO.
The conclusion? USO is crap!

--- Quote ---
USO has a specific strategy, it's NOT managed to be best for
investors. They simply do one thing; buy front month oil futures in
WTI crude, then on the about the 5-8 of each month (they announce the
dates each month) they sell those futures and buy the next month.
Because the next month future is always more expensive than the front
month, USO loses money every time it rolls over. Also this will not
change, perhaps ever, because oil is running out, so future oil is
almost always more expensive than present oil. Once again, NOV which
is an Oil service company, actually follows oil much better, look in
to it.

So for example lets pretend today is the specified roll date for USO
So the managers sell all the May Futures at 52.38 and then buy as many
June Futures at 54.02 with the sale proceeds. So just like that they
own 3% less oil then they had before (there were times in the past
when they lost more than 10% on the roll). So lets say you decided to
buy USO and keep it for a year. And during this year the average
losses due to the roll were about 3%. Over the course of the year USO
would lose 30.6% of it's original value, so you are essentially
betting that oil will rise more than the compounding effects of roll
losses. It is significant that USO owns about 25% of the May Futures
so by selling this position they drive the price down and lose even
more money.
--- Unquote ---

--- Quote ---
USO - Holds current months contract and next months contract. This
leads to serious erosion issues during contango, but is good during
backwardation.
DBO - "employs a rule based approach when it 'rolls' from one futures
contract to another for each commodity in the index. Rather than
select the new future based on a predefined schedule (e.g. monthly)
the index rolls to that future (from the list of tradable futures
which expire in the next thirteen months) which generates the maximum
implied roll yield. The index aims to maximize the potential roll
benefits in backwardated markets and minimize the loss from rolling
down the curve in contago markets.
USL- For comparison, USL holds equal values of current contract and
the next 11 months. This helps mitigate contango issues.

In short, buy USL during contango. Buy USO during backwardation. Or
buy DBO and let DBO worry about contango/backwardation for you.
--- Unquote ---


http://finance.google.com/group/google.finance.705740/browse_thread/thread/a28fb9c31c06a3c3
http://finance.google.com/group/google.finance.3701425/browse_thread/thread/e039da114ff2683f