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ETF in Focus: USO and USL

Stocks in this article: USO USL

NEW YORK ( TheStreet ) -- Things in Egypt are tense and deteriorating. The organized Mubarak Kabuki theater announcement in the dead hours of the night in Egypt, coinciding with U.S. market close and with Obama administration officials gathered to watch, didn't ease the situation. All this wasn't well received by crowds as Mubarak allies take to the streets to fight protestors. All this continues to roil energy markets.

Two popular direct oil ETFs include USO and USL:

United States Oil Fund (USO), is a domestic exchange traded security designed to track the movements of light, sweet crude oil ("West Texas Intermediate"). USO issues units that may be purchased and sold on the NYSE Arca.


The investment objective of USO is for the changes in percentage terms of its units' net asset value ("NAV") to reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract for light, sweet crude oil traded on the New York Mercantile Exchange (the "NYMEX"), less USO's expenses.

The United States 12 Month Oil Fund (USL), is an exchange traded security that is designed to track the movements of West Texas Intermediate light, sweet crude oil (WTI). USL issues units that may be purchased and sold on the NYSE Arca.

The investment objective of USL is to have the changes in percentage terms of the units' net asset value reflect the changes in percentage terms of the price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the average of the prices of 12 Futures Contracts on crude oil traded on the New York Mercantile Exchange (the "Benchmark Futures Contracts").

It consists of the near month contract to expire and the contracts for the following 11 months, for a total of 12 consecutive months' contracts, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contracts that are the next month contract to expire and the contracts for the following eleven consecutive months, less USL's expenses. When calculating the daily movement of the average price of the 12 contracts each contract month will be equally weighted.

We prefer USL given contango/backwardation of monthly rollover of contracts given its 12-month structure which mitigates potentially negative contango issues where longer term contracts trade at higher prices to current prices.

We are long USL.

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