Why does an oil fund not track the price of oil?
A fund cannot store crude oil in a warehouse. It holds futures — contracts for oil delivered next month — and rolls them forward before delivery. The roll is a cost or a gain that appears nowhere in the fund's fee, and over years it can dwarf the move in oil itself. The commodities domain has a whole course on the curve; this lesson is what the curve does to a fund.
The roll
A futures contract expires. A fund holding the front month must sell it before expiry and buy the next month. If the next month costs more than the one being sold — a market in contango — the fund pays to roll: it ends up holding fewer barrels' worth of exposure for the same money, every month. If the next month is cheaper — backwardation — the fund gains on every roll.
The spot price of oil can go nowhere while the fund loses steadily, or the fund can outrun the spot price for years. Neither is tracking error; the fund is tracking the futures strategy exactly. It is the spot price the holder had in mind that was never on offer.
The measured pair
Two funds, two commodities, the same five years to 3 September 2026, adjusted for distributions, beside the continuous front-month price series for each commodity:
| Fund | Front-month series | |
|---|---|---|
| Crude oil | USO.US +192% |
CL.COMM +32% |
| Natural gas | UNG.US −84% |
NG.COMM −38% |
The oil fund beat the oil price by 160 points; the gas fund lost more than twice what gas lost. Same mechanism, opposite sign. Oil's curve spent most of those years in backwardation — tight supply, a premium for barrels now — so each roll paid the fund. Natural gas lives in contango almost permanently, because storing it is expensive and the curve carries that storage cost, so each roll charged the fund. A holder who bought UNG.US in 2021 for "exposure to natural gas" got exposure to the gas curve, and the curve took two thirds of the money.
Read the curve before the fund
Before holding any commodity fund for longer than a contract's life, look at the futures curve: is the next month above or below the front month, and by how much a month? Twelve rolls a year at 1% each is a 12% annual charge that no factsheet lists. The curve is public and it changes; the gas fund's drag is structural, the oil fund's gain was a regime that will not last forever.
What else can go wrong
A fund can be forced out of the front month. When the front month crude contract went negative in April 2020, funds holding it took catastrophic losses, and the largest oil fund changed its rules afterwards to spread holdings across several months. A commodity fund's rulebook is not fixed; read the current one.
Position limits and suspended creations. A fund that grows too large for its futures market can be told to stop creating units, after which its price can float above the value of what it holds — the premium case from unit 1.
Physical funds are the exception. A bullion fund holds metal in a vault, has no roll, and tracks the spot price minus its fee. That is why gold funds track gold and gas funds do not track gas.
In the data
The oil fund's own record:
Six holdings: a handful of futures contracts, not a tank of oil. Look for the roll in it and you will not find it. The turnover line reads zero (29 September 2026), because replacing one month's contract with the next is not counted as trading the portfolio, so the one line that looks as if it should show the roll does not. The front-month series on the charts below are stitched together from successive contracts: a reference for the price, not something anyone could have held.
Try it now
- Measure the same five years on each pair — fund above, front-month series below — and confirm the table:
- Write down the gap for each pair with its sign. One gap is a gift and one is a bill, and the futures-curve course explains why gas is the bill almost every year.
- Then the physical exception, over the same five years, beside the metal it holds — and say why this pair's lines stay together when the other two do not: