Why This Popular Crude Oil ETF Is Not the Best Way to Play the Rebound

Oil prices are on the rise to end March. On March 26 WTI oil hit a high of $52.46. That's a 19% climb from the lows it hit just two weeks ago.

And as the price of oil rises, shares of the United States Oil Fund LP (NYSE: USO) are climbing too. The crude oil ETF is up 9% since March 18.

You see, investors are flooding into this oil ETF as a way to play rebounding oil prices.

The United States Oil Fund is designed to track the movements of WTI oil by investing in oil futures contracts. It's the most popular U.S. oil fund on the market. It owns contracts on more than 64 million barrels of oil.

The Financial Times reported that investors poured more than $2 billion into the fund in the last year. Total assets now exceed $3.1 billion.

At first glance, it looks like the perfect way to play oil's rebound. After all, it's designed to track WTI's price.

But for long-term investors, buying shares of this crude oil ETF right now is not the best strategy for playing oil's rebound. There's something holding back the returns on this crude oil ETF investment...

What Investors Are Missing About This Crude Oil ETF

The nature of trading futures contracts puts investors at a disadvantage when prices rise.

ETFs like the United States Oil Fund are only concerned with tracking the price of oil, so they will continually roll expiring contracts into the next month's futures contract.

But there is a problem known as "contango" that can seriously limit investors' returns...