If you're investing on a longer-term horizon (a year or more), the monthly futures roll where the USO fund sells the current month's oil contracts (because it doesn't want the actual oil to be delivered) and buys the following month's oil futures (normally at a higher price than what it sold the current month's at) will eat into any returns you get from price appreciation.

To put some numbers to the example, let's say the fund has 100 barrels of oil, and the current month's price is $20, and next month is $21. When it rolls the contracts, it sells 100 barrels for $2000, and buys 95 barrels, with $5 left over.

Fast forward a month. Prices have gone up by $1 for all months oil. It will sell 95 barrels for $22 ($2090, plus the prior month's leftover $5) and buy 91 barrels for $23, with $2 left over.

Fast forward another month. Let's say you owned the entire fund and decided to liquidate it. Prices for your contract have gone up another $1, so you sell your 91 barrels for $24, receiving $2184, and adding the extra $2 in cash you had gives you $2186. That's a 9.3% return in two months.

Compare that to the price of oil as reported in the news - it's the front month contract, so on the face of it, oil has gone from $20 to $24 (20% increase) while you've only made 9.3%.

The numbers are somewhat exaggerated here, and it can work the other way (current month more expensive than forward month) but is uncommon. This is why USO has historically been a bad long-term proxy for the price of oil.

https://personal.vanguard.com/us/funds/snapshot?FundId=0051&...

Note that this is SUPER RISKY investment fund. If you look at the chart it has major swings up and down. The fund is down 20% for 2016 (yikes!). But if you had held it from 2012 -> 2014 you would have gotten a 40% return on your investment.

I like Vanguard funds since they have a low management cost to them and they tend to be a little more conservative in their selection.

Good luck, remember me when you make your million!

Also consider whether you want to invest in oil related companies or in the price of oil itself (which is just as possible).

NB. I have nothing for or against Vanguard funds and have heard a few people supporting them.

Oldest trick in the book: fove out free advice and take a share of the wins, but don't pay a share of the losses ;-)

That's the key underpinning to the stock market. Just ask any broker.

Good for humanity, bad for O&G industries.

EDIT: I'm fairly confident this is the start of the end. The US Congress extended the production tax credit for renewables for 5 years, along with Tesla's Gigafactory ramping up production, which means we're going to be awash in renewable-generated power and have the capacity to store it (in cars, and in stationary storage).

That's very hard to analyze because the issue is not just how oil is sourced and used, it is how people on average expect it to be sourced and used.

On the supply side, while producers like the Saudis are trying to undercut fracking with low prices now, they can't make people forget about fracking. If the Saudis try to raise prices again, then fracking becomes a viable competitor again.

On the demand site, the world is not going to forget about global warming. Population growth will keep slowing. Infrastructure will keep getting built and keep getting smarter.

At some point the supply and demand sides will diverge enough to knock oil from its privileged position as THE key resource for the economy. This is similar to earlier essential resources like food, clothing, water, shelter, mining, etc. We still spend a lot of money on these things, but there is no expectation that they are guaranteed growth industries.

I suspect if prices rise again, those test wells may have proved to be profitable. However, the oil companies came through and leased tons of acreage already and spent lots of money on the leases. Even if prices come back, many of the leases would have either expired or the gas companies would have to pay for their extension provisions. Given the state of the companies that started leasing (CHK: down 86% since they leased my father-in-laws old farm property), I don't think they have the money to do that. Even if the original leaser sold the leases off, which happened in many cases, the new owner would still have to pony up the extension and then start drilling again, exposing themselves to OPEC under-cutting them again.

I think its about equally likely that the end game is that the price of oil (ultimately driven by energy to extract each unit) goes up until other things that are known are more cost effective for most uses; this doesn't make it "lose its value" -- the use value remains the same and the market clearing cost per unit is high -- but it shrinks the size of the market (there may be some uses for which it is still cost effective, but not as many) and is still bad for the oil & gas industry.

And, with the cost of renewables continuing to drop, along with government incentives, I don't ever see the cost of electricity going back up. Ever.

On the other hand, Texas has so much wind power locally that they can't ship out of the state yet that some utilities give power away for free at night:

http://www.nytimes.com/2015/11/09/business/energy-environmen...

As more renewables come online (and they will, I assure you), this will further drive down the per kwh cost.

Yes, all the major banks (Goldman, JP Morgan) have models for this kind of thing.

http://www.forbes.com/sites/michaellynch/2015/09/14/goldman-...

http://247wallst.com/energy-economy/2015/11/09/jpmorgan-slig...

Eventually the price will stabilize, somewhere in the $35 - $65 range, probably.

Keep in mind: China economy cooling off, fuel efficiency standards, shifting demographics (older populations drive less).

We reached peak oil, it just wasn't supply. It was demand.

Nifty redefinition, but I take this to confirm that the Peak Oil aficionados were kooks, just as they seemed to be. They and Paul Ehrlich will eventually be joined by many others in my "confirmed kook" bucket, but so far my "strongly suspected kook" bucket seems pretty accurate too.

This is definitely a buying opportunity for those with the money to make such investments.

Being too early is the same as being wrong.

You can't simply buy "Oil". So if you buy an oil contract I'll expect, on the long run, to pay fees for storage at least.

http://thedailywtf.com/articles/Special-Delivery don't know if it's true and not that bothered as it's still fairly hilarious.

I think there would be legs in a Silicon Valley/IT crowd style show about market traders.

Edit: Whoever is downvoting obviously has never seen this happen. There was just an article about it on HN the other day, describing how Dragon lost it all when the company they sold to plummeted to zero stock value.

I don't think there's much risk of bankruptcy for high-cap MLPs, and for low-cap ones the risk is priced into the stock (and then some). The price of oil has to recover sooner or later; the Saudis don't have an economy unless they have high oil prices, and they're the ones behind the current glut. Kuwait is already negotiating with OPEC and non-OPEC producers to raise oil prices again...