St. LOUIS () -- Yesterday, GMP Securities Chairman Eugene McBurney at the that the difference between this cycle and previous cycles is the new participants: Hedge funds and ETFs. Well, we have a new one for you.
Victoria Bay Asset Management, LLC and the American Stock Exchange announced yesterday the launch of the United States Oil Fund, LP [AMEX:USO]. It is the first U.S.-listed crude ETF.
The ETF will track the price of West Texas Intermediate (WTI) light, sweet crude oil delivered to Cushing, Oklahoma, whose price is the primary benchmark in the U.S. for crude oil.
"The partnership does not seek to use leverage in the portfolio to achieve its investment goals," the company said in a press release.
According to the release, USO will purchase futures contracts for WTI light, sweet crude oil and other petroleum-based fuels traded on U.S. futures exchanges, as well as other oil interests such as cash-settled options on oil futures contracts, forward contracts for oil and over-the-counter transactions that are based on the price of oil.
"The fund intends to invest primarily in those futures contracts that are in the two months closest to expiration because we feel those contracts will permit the fund to best achieve its investment objective," said John Hyland, the fund's Director of Portfolio Research, in the release.
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According to a USO spokesperson, after the fund buys the oil futures contracts, it rolls them over about two weeks prior to expiration.
"That's when we find it the most liquid," said the spokesperson.
In order to buy futures, investors need a futures account, the spokesperson continued. USO does not require such an account, which makes it easier for the investors.
But investors should see the USO prospectus for complete information about this security, including risks, expenses and other important terms.
The NAV will be calculated and posted everyday and an intraday indicative value will be posted every 15 seconds during the AMEX normal trading hours, according to the company.
As of April 10, 2006 the portfolio consists of 96 June NYMEX LSC oil contracts and $6,793,000 cash. The NAV was for April 10th is $67.93.
Conclusion
Although investor interest has perked up in oil and oil sands of late, oil-backed ETFs have not yet taken off with investors to extent of gold-backed ETFs.
Currently there are only two such products in the market place: ETF Securities' Brent crude ETF OIL Securities [LSE:OILB], which launched just last year, and now the AMEX-listed USO.
But according to the ETF Securities' newsletter, OILB assets have grown by 130% year to date to $130 million, while exchange volumes have increased by 250%.
Back in January, when RI on OILB, a reader commented "What about Americans? When I looked into this OILB, the site said that it was not approved for U.S. investors. Anything in the works for us?"
Voila.
"Oil is the most heavily traded commodity out there," the spokesperson said. "We're hopeful it will take off."
Share Price Activity
Today, the contract closed up 24 cents at $68.26 on AMEX.
Crude for May delivery climbed as high as $69.25 a barrel on the New York Mercantile Exchange, then pulled back to $68.40, down 34 cents.
