Rearden, October is the front month now. It only trades till late September. USO does not hold the back months, they roll over the near contracts. USO will continue underperforming relative to spot prices as long as the near month futures remain in this strong contango.
Uh... what do you mean? I'm not saying there is any free lunch, or riskless arbitrage in this. There is not. Just that it is very expensive to hold a long position in oil as long as the "futures curve" is so steep. But the flip-side is, if you are short, you have the wind behind your back.
Last time Oil dipped like this in June everyone thought it was headed lower, they were cheering $60 oil, well guess what it surged right back up for about 3 weeks straight. Oil will be back above $73 in the next 2-3 weeks. Its been down this far 3 times before, bouncing back each time. It may drop to $65-$68 but I think its headed back up.
what would keep iran/saudis/russia from causing some political turmoil in the next few weeks in order to keep oil prices high? seems quite likely.
No no no no. USO is a stock, it doesn't track the rollover premiums on the day of termination, but does track crude. In other words, when front month terminates to next month there usually is a premium of $1, but doesn't mean that during rollover, crude went up $1. The premium involves storage costs, etc. When the Sept's expire, the the true daily change will reflect from Oct's previous day close. I think the USO closed end fund does begin rollover about 2 weeks before termination to deal with the rollover premiums. Do a chart of the Sept front month historical back to 5months and u'll see a mirror image to USO. The discrepancy in price is just reflecting premiums in back months. In other words, when they start to sell the sept's, and buy the oct's, they'll buy less contracts (since back months trade at premium), but the net value of portfolio remains same. If back months trades at discount, u'd see USO trading "higher" than front month contract, etc...
What's your timeframe? Are you aware you are fighting a 20% annual cost if you just hold USO long? (assuming $1 rollover cost every month) I'd guess most oil bulls do not take this into account.