Oil ETFs Explained
Most oil ETFs do not own barrels of oil. Funds such as USO (WTI) and BNO (Brent) hold near-dated futures contracts and roll them every month. Their daily moves track the oil price closely, but over months and years their returns can be much higher or lower than the spot price because of roll yield, fees and the structure of the fund.
Live charts via TradingView. Compare with the futures prices on the crude oil price chart.
ETFs are not risk-free. Oil fund prices can fall sharply, and futures-based funds can lose value over time even if oil prices hold steady. This page explains how the products work; it is not a recommendation to buy or sell any fund.
The main types of oil fund
| Type | Examples | What it holds | Tracks |
|---|---|---|---|
| Front-month futures fund | USO (WTI), BNO (Brent) | Near-dated oil futures, cash and Treasuries | Short-term futures prices, including roll effects |
| Diversified-maturity futures fund | Funds spreading holdings along the curve | Futures across several months | The futures curve, with smaller roll effects |
| Leveraged / inverse products | 2x long, −1x or −2x oil products | Futures or swaps, reset daily | A multiple of the daily move only |
| Oil equity ETFs | Energy sector and E&P funds | Shares of oil companies | Company earnings and stock market moves, not the oil price directly |
Fund lists are examples of structures, not recommendations. Check each fund's prospectus for its current holdings and fees.
How USO works
The United States Oil Fund (USO) began trading on 10 April 2006. According to its issuer, USCF, its objective is for daily percentage changes in net asset value to track the daily changes in the price of WTI crude for delivery at Cushing, Oklahoma, as measured by its benchmark futures contract, plus interest earned on collateral and minus expenses. The benchmark is the near-month NYMEX WTI contract, which rolls into the next month over five days at the start of each month. The fund may also hold other months and contracts on other exchanges.
USO is a commodity pool regulated by the CFTC, not a mutual fund. It is structured as a limited partnership, which has tax consequences for US investors; check the issuer's tax information before investing.
How BNO works
The United States Brent Oil Fund (BNO) started on 2 June 2010. It tracks the near-month ICE Brent futures contract, switching to the next month when the near month is within two weeks of expiry. Because Brent and WTI curves can have different shapes, BNO and USO can perform differently over the same period even when the Brent-WTI spread barely changes.
Why ETF returns differ from the oil price
Three forces separate a futures fund's long-term return from the headline oil price:
- Roll yield. In contango (later months more expensive), every roll sells low and buys high, which drags on returns. In backwardation (later months cheaper), rolling adds to returns. See oil futures rollover and contango vs backwardation.
- Collateral interest. Futures need only margin, so most of the fund's assets sit in cash and short-term Treasuries. When interest rates are high, this income adds to returns.
- Fees and costs. The expense ratio, brokerage commissions and the cost of trading large rolls are deducted from the fund.
The effect can be large. In contango periods such as 2009 and early 2020, front-month oil funds lagged the spot price badly. In April 2020, when storage at Cushing filled and the May WTI contract settled at −$37.63, USO moved into later-dated contracts and carried out a 1-for-8 reverse share split. Our oil price history covers that period.
Leveraged and inverse oil products
Leveraged and inverse oil products aim to deliver a multiple, or the opposite, of the daily move in oil futures. Over longer periods, daily compounding means their returns can differ greatly from two times or minus one times the period's oil move, especially in volatile markets like 2026. They are designed for short holding periods and can lose most of their value in a sharp move against them.
Oil ETFs vs oil stocks
Equity funds that hold oil companies respond to oil prices, but also to company costs, dividends, buybacks, refining margins and the wider stock market. They do not suffer roll costs but they do not track crude closely. See oil stocks and the oil price for how majors, producers and refiners differ.
When oil ETFs can suit investors
- Short to medium-term views on oil, where the roll effect is small relative to the expected move.
- Accounts that cannot hold futures, such as many retirement or cash brokerage accounts.
- Limited downside: without margin, you cannot lose more than you invested, unlike futures or CFDs.
They suit long-term "buy and hold" exposure less well, because roll costs and fees compound over time. Before buying any fund, read its prospectus, check its holdings, expense ratio and tax treatment, and look at the shape of the futures curve. For other ways to trade oil, see how to trade crude oil.
Oil volatility and ETF options
Cboe's Crude Oil ETF Volatility Index (OVX) measures the market's expectation of 30-day volatility in USO, using prices of options on the fund. It rises when traders pay more to protect against large oil moves, as during the 2026 Middle East supply disruption. More on options is in crude oil options.
Oil ETF FAQ
Does USO own physical oil?
No. USO holds WTI crude oil futures contracts, mainly the near month, plus cash and short-term US government securities as collateral. It never takes delivery of oil. Its price follows short-term futures, which is why its long-term return can differ from the spot price.
Why does USO not match the oil price over time?
Because the fund rolls futures each month. In contango, later contracts cost more, so each roll loses a little value. Fees reduce returns further, while interest on collateral adds some back. Over months or years these effects can add up to large differences from the spot price.
What is the difference between USO and BNO?
USO tracks WTI crude futures traded on NYMEX, while BNO tracks Brent crude futures traded on ICE Futures Europe. Both hold near-month contracts and roll them, but the two curves can have different shapes, so their returns can differ even when Brent and WTI spot prices move together.
Can an oil ETF go to zero?
A fund that holds oil futures can lose most of its value in an extreme market, as front-month funds came close to doing in April 2020. Without margin, an investor cannot lose more than the amount invested, but leveraged oil products can fall to near zero after a large adverse move.
Are oil ETFs good long-term investments?
Futures-based oil ETFs are generally built to track short-term price changes, not to be held for many years. Roll costs in contango and annual fees can erode returns over time. This site does not make investment recommendations; read each fund's prospectus and consider professional advice.
Related pages
Oil Futures Rollover
How oil futures rollover works: why continuous charts gap, the cost of rolling in contango, and how ETFs and CFD providers handle the roll.
Oil Stocks
How oil company stocks relate to the oil price: integrated majors, E&P producers, refiners and services, with sensitivities and live quotes.
How to Trade Crude Oil
A practical guide to trading crude oil: futures, options, ETFs and CFDs compared, contract sizes, margin, costs, risk management and common mistakes.
Contango & Backwardation
Contango and backwardation in crude oil explained with examples: what the futures curve says about supply, storage economics and ETF roll costs.