Econ

Econometrics Project
Part 1

Oil

1. The United States Oil Fund (USO) is an exchange-traded fund (ETF) that invests in futures contracts for many petroleum products.   Although USO mainly tracks the futures of West Texas Intermediate light sweet crude oil, the fund also trades futures of crude oil, heating oil, gasoline, and natural gas.   It also has holdings in such oil-related investments as cash-settled options on oil futures contracts, forward oil contracts, and oil-based over-the-counter transactions.
The Victoria Bay Asset Management and the American Stock exchange created the fund in April 2006.   During the fund’s first year, its price declined around 22% from its opening of $67/share.   Over the next year and a half, the USO’s price rose to a high of almost $120/share in July 2008.   Currently, the price has fallen dramatically to around $27/share as of end-February 2009.

The iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) is a sub-index of the S&P GSCI Commodity Index owned and managed by Barclays.   OIL’s correlation with the S&P GSCI Crude Oil Total Return Index is 1.00, while its correlation with the S&P GSCI Total Return Index is 0.94.   The S&P GSCI Crude Oil Total Return Index tracks investment in West Texas Intermediate light sweet crude oil while taking into account the prospective earnings on funds using the Treasury Bill rate of interest.

There are several differences between the United States Oil Fund and the iPath S&P GSCI Crude Oil Total Return Index ETN.   Although both ETFs track West Texas Intermediate, USO also trades with the futures of other petroleum products.   USO also has holdings in several other oil-related investments.   Meanwhile, OIL follows the S&P GSCI Crude Oil Total Return Index, which tracks investment solely in WTI.   OIL also takes into account the Treasury Bill rate of interest that could be earned on cash used in the fund’s trading.   Another minor difference is that USO originated on the American Stock... [continues]

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