A Different Kind of Crude Oil ETF From U.S. Commodity Funds

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United States Commodity Funds, the company behind several of the largest futures-based exchange-traded commodity products, added a new fund to its lineup this week. The United States Brent Oil Fund (NYSEARCA:BNO) began trading on Wednesday, becoming the eighth product offered by USCF. The objective of BNO is for the daily changes in percentage terms of net asset value to reflect the daily changes in percentage terms of the spot price of Brent crude oil as measured by the changes in the price of the futures contract on Brent crude oil as traded on the ICE Futures Exchange.

Brent oil might seem like a strange commodity to make the focus of an ETF, but it’s a more important global resource than most investors realize. The Brent crude oil contract, which trades in U.S. dollars in London, is the second most liquid commodity futures contract in the world; it comes in behind only West Texas Intermediate (WTI) and ahead of gold and natural gas. The largest ETF focusing on WTI futures contracts, the United States Oil Fund (NYSEARCA:USO), currently has about $1.8 billion in assets. The largest futures-based gold (NYSEARCA:DGP) and natural gas (NYSEARCA:UNG) ETFs have assets of about $450 million and $2.8 billion, respectively. So it’s reasonable for USCF to hope that BNO will see decent demand from investors. BNO began trading Wednesday at a price of $50 per share with 200,000 shares outstanding.

Brent is a light crude oil (although not as light as WTI) that is ideal for production of gasoline. It often serves as a benchmark for pricing of oil produced in Europe, Africa, and the Middle East that is headed west. Brent is priced at the port of Sullom Voe in the Shetland Islands off the North Sea and moved via tanker to its end destination.

Like other exchange-traded commodity products, BNO offers a way for investors to gain exposure to commodities futures without a commodity futures account. It’s also important to not that because it utilizes futures contracts to gain exposure, movements in price will depend not only on spot prices of the underlying commodity, but the slope of the futures curve as well. Similar to crude oil and natural gas futures, the market for Brent contracts is slightly contangoed. ICE Brent futures for July (expiring on June 15) were recently trading at about $74; August contracts were trading about 1.1% higher than July futures with the September futures another 1.0% above August.

Disclosure: No positions at time of writing.

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