Oil ETFs Are Crushing Oil Itself, Thanks to the Futures Curve

Oil ETFs Are Crushing Oil Itself, Thanks to the Futures Curve

Fri, September 4, 2026 at 4:49 AM GMT+3 3 min read

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High oil prices have been a boon for oil futures ETFs this year. But the bigger story is the shape of the futures curve, which has pushed the biggest oil fund far ahead of oil itself.

Since the start of the year, the United States Oil Fund (USO) is up 105.5%, nearly double the 59% gain in front-month crude futures. Oil has risen sharply, with West Texas Intermediate climbing from $57.42 at the start of the year to about $91.30 a barrel now. But the futures curve is why USO has performed so much better than the commodity it tracks.

How the Roll Works

USO holds front-month oil futures, the contracts closest to expiration. As those near expiry, the fund rolls into the following month's contracts, and that roll can help or hurt returns depending on the shape of the curve.

When the next month's contract trades higher than the current one, the market is in contango. The fund ends up buying fewer contracts with the same money, which tends to drag on returns. When the next month is cheaper, the market is in backwardation. The fund buys more contracts, which tends to boost returns.

War-Driven Backwardation

Since the Iran war began on February 28, the oil market has been in steep backwardation. Traders sharply bid up near-month contracts on the supply disruption in the Strait of Hormuz, while later-month contracts rose far less, on the assumption that the disruption would prove temporary and supplies would normalize.

That normalization has been much slower to arrive than expected. The strait remains obstructed, attacks on tankers have continued, and the U.S. has reimposed a naval blockade on Iran.

As a result, oil prices have stayed higher than the futures market initially priced in, and the curve has stayed backwardated. Even now, later-month contracts are well below near-month ones, as traders keep betting on an eventual return to normal.

The October contract recently traded at $91.30, while November traded at $88.27, a 3.3% discount. That means when USO rolls, it can sell October contracts and buy about 3.4% more November contracts, adding to its returns as long as oil holds around $91.30 or higher.

Compounded across months of steep backwardation, this type of "roll yield" is the reason for the wide gap between the return on oil and the return on the fund.

The Gap in Action

The effect is even more striking measured from oil's peak. WTI closed near $113 on April 7, its high for the year, and has since fallen more than 19%. Yet over that same stretch, USO is up about 3%.

Brent, the other major benchmark, tells the same story. It peaked above $118 on March 31 and has since dropped 19% to trade below $96, but the United States Brent Oil Fund (BNO) is up 7.5% over that period.

It's an unusual situation for holders of these funds. Oil prices have been flat to lower since their wartime peaks, yet because of the steep backwardation, returns have continued to accumulate.

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