The rebound in oil prices has investors scratching their heads over the not-so-slick performance of exchange traded funds that track the commodity. These funds have lagged crude prices since they bottomed late last year.

The United States Oil Fund ( USO), the most widely traded oil ETF, followed the 77% drop of crude prices between July and December. Even though oil prices have climbed 45% since then, the fund has lost another 4.3%.

ETFs that trade oil futures, which allow investors to lock in the cost of oil they plan to buy later, face unique challenges. During bullish times, when oil prices are expected to rise, funds can end up paying contract prices that are higher than spot prices, a situation called "contango." Each time an oil ETF rolls contracts forward a month during periods of contango its return is eroded.

Generic crude oil contracts for May 2009 are trading at $48.46 a barrel on the New York Mercantile Exchange. The price rises to $55.04 for October 2009 contracts and $60.20 for May 2010 contracts. Each time an oil ETF rolls contracts forward a month, its return is eroded.

This appears to be the pattern at the United States Oil Fund, which underperformed spot prices by 73% to 111% between April 2006, when it started trading, and oil's peak on July 11. The fund, the oldest of its kind, holds an E-plus grade from TheStreet.com Ratings, a recommendation to "sell."

The same has happened at rival funds. Between July and December, the E-rated iPath S&P GSCI Crude Oil Total Return Index ETN ( OIL) fell 76%. However, it lost another 12% as oil prices rose.

During the same periods, the E-rated PowerShares DB Oil Fund ( DBO) gave up less on the way down, losing 67%, but has only rebounded 9.3%. The unrated PowerShares DB Crude Oil Double Long ETN ( DXO) plummeted 93%, more than spot prices, and has since climbed 27%.

This risk is disclosed in the United States Oil Funds' most recent annual report, which says in "a prolonged period of contango, and absent the impact of rising or falling oil prices, this could have a significant negative impact." The opposite of contango is called "backwardation," when near-term contracts trade at higher prices than future ones. That situation usually boosts fund returns.

The PowerShares DB Crude Oil Double Long ETN is the only fund of the group that outperformed crude prices in the weeks leading up to July 11. The fund, which started trading on June 17, returned 16% percent during those weeks, doubling the 8.3% rise of crude. Leveraged ETFs can do well over short periods but volatility can hurt returns long term.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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