Here's How Much Investing $100 In The USO Oil Fund In 2010 Would Be Worth Today

Investors who owned stocks in the 2010s generally experienced some big gains. In fact, the SPDR S&P 500's SPY total return for the decade was 250.5%. But there’s no question some popular investments did much better than others along the way.

Oil’s Disastrous Decade

One abysmal performer in the last decade was the United States Oil Fund LP USO.

WTI crude oil started out the 2010s trading at around $82 per barrel. For the first half of the 2010s, booming global economic demand helped support WTI crude oil prices in a range of between around $80/bbl to around $110/bbl. A spike in U.S. shale oil production eventually created a supply glut that sent oil prices crashing in mid-2014. WTI didn’t bottom out until early 2016 at $26.05/bbl.

Prices then started drifting back higher as production cuts stabilized the market. WTI peaked at $76.90 in late 2018. But a perfect storm in 2020 of a pricing war between Saudi Arabia and Russia, an extreme downturn in demand due to COVID-19 travel restrictions and U.S. storage approaching 100% of capacity sent WTI prices crashing to negative territory in the days approaching the expiration of the May futures contract.

In fact, WTI prices dropped to roughly negative $40/bbl before recovering to around $12 following the May contract expiration.

Unfortunately, as poorly as oil prices have performed over the past decade, the USO fund has performed even worse due to value destruction from contango. Contango occurs due to the monthly rollover of WTI futures contracts in the USO fund. The fund typically pays a higher price for the longer-dated contracts it is buying than the price it gets for the shorter-dated ones it is selling, eroding value over time.

USO In 2020 And Beyond

WTI crude oil prices are down about 85% overall since the beginning of 2010. Unfortunately, thanks to contango, the USO fund has performed even worse.

In fact, $100 USO shares in 2010 would be worth about $5.40 today.

Looking ahead, analysts are optimistic that the historic drop in oil prices is only temporary. Goldman Sachs is forecasting Brent crude prices will triple from $19.65/bbl this week to $60/bbl by the end of 2021.

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