This exchange-traded product tracks the daily price movements of West Texas Intermediate crude oil futures contracts. It does not hold physical crude oil. Instead, it maintains oil price exposure mainly through front-month crude oil futures contracts traded on the New York Mercantile Exchange.

It suits investors who want to bet on the short-term direction of oil prices, and it is recommended for use only by those who fully understand the cost structure of rolling futures contracts.

It is an actively managed ETF launched in 2006 by USCF Investments.

The fund maintains oil price exposure by rolling, each month, front-month futures contracts nearing expiry into next-month contracts. In a contango market (where deferred contracts are priced higher than front-month contracts), rolling incurs a cost, so returns can lag the actual rise in oil prices. Conversely, in a backwardation market, rolling can generate a gain.

• Direct exposure to crude oil futures allows investors to capture short-term oil price direction
• Low correlation with the stock market makes it useful as a portfolio diversifier

Assets under management (AUM) stand at $2.2B, and the Expense Ratio is 0.60% per year.

Compared with BNO (Brent crude futures), USO is benchmarked to West Texas Intermediate crude and reacts more sensitively to issues in the US oil supply chain. It ranks among the more liquid and widely recognized oil-related products.

Oil prices swing sharply in the short term depending on production cut and increase decisions by the Organization of the Petroleum Exporting Countries (OPEC), global demand outlooks, and the level of geopolitical tension. Because of its futures-based structure, a long-term gap versus spot oil prices can build up, so the fund is mainly used to follow short-term trends.

Short-term inflows tend to concentrate when expectations for higher oil prices rise, while outflows appear quickly when concerns about a global economic slowdown or weaker demand forecasts emerge. A large share of investors use the fund as a hedge or a short-term trading tool, so fund flows tend to fluctuate widely.

It offers highly accessible short-term exposure to oil prices, but the key risk is value erosion over long holding periods caused by roll costs and the contango structure.

As the table shows, BNO is based on Brent crude futures, so its oil benchmark differs from that of USO. UNG offers natural gas futures exposure, covering an energy segment separate from crude oil. DBO is a strategy-based oil product designed to reduce roll costs, and it is worth comparing if you are considering a longer holding period. USL adopts a 12-month staggered roll approach, which eases the contango exposure that comes from concentrating on front-month contracts. For leveraged oil exposure, UCO (2x) is an option, and for an inverse position, SCO is also available.

There are structural characteristics to review before investing in USO. Futures-based oil products have a different cost structure from physical assets, and depending on the holding period, realized gains and losses can differ significantly from spot oil prices.

In an environment where the contango structure persists, the fund's value can keep declining due to accumulated roll costs, even if oil prices move sideways or rise slightly. The risk of sudden short-term swings from geopolitical shocks or OPEC decisions is also ever-present.

It is an accessible choice for investors looking for a way to gain exposure to short-term oil price direction. However, because of roll costs and the spot price gap, it is not suited to long-term holding, and it is best used for trading purposes after fully understanding this structure.