You’re looking at the price of gas at the pump, seeing it tick upward, and thinking, "I should probably profit from this." Naturally, you pull up your brokerage app and find the United States Oil Fund stock (ticker: USO). It looks like the perfect shortcut. You buy the ticker, oil goes up, you make money.
Except, that’s not really how it works. Honestly, if you treat USO like a regular stock, you’re likely going to get burned. It’s a common trap. People think of it as a "spot price" tracker—basically a digital barrel of oil sitting in a warehouse—but the reality is much more chaotic and involves a lot of "financial plumbing" that the average person never sees.
What is the United States Oil Fund stock, anyway?
First things first: USO isn't a company. It doesn't have a CEO, it doesn't manufacture anything, and it certainly doesn't own any oil wells or refineries. It’s an exchange-traded security—technically a Limited Partnership—designed to track the daily price movements of West Texas Intermediate (WTI) light, sweet crude oil.
Instead of holding physical barrels, the fund buys oil futures contracts.
Think of a futures contract like a pinky promise to buy oil at a specific price on a specific date in the future. Because USO doesn't actually want 50,000 barrels of oil delivered to its doorstep in Cushing, Oklahoma, it has to "roll" those contracts. Every month, it sells the contracts that are about to expire and buys new ones for the following month.
This "rolling" process is where things get weird.
The hidden tax headache: Schedule K-1
Before we go deeper into the mechanics, you need to know about the paperwork. Most ETFs send you a standard Form 1099 at the end of the year. Not USO. Because it’s structured as a partnership, it sends out a Schedule K-1.
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If you’ve ever dealt with a K-1, you know they usually arrive late—sometimes in March or April—and they can make your tax filing significantly more complicated. You might even find yourself paying taxes on "gains" the fund made, even if you didn't sell your shares. It’s a massive turn-off for casual investors.
Why the "Contango" monster eats your profits
If you’ve spent any time in trading forums, you’ve probably heard the word contango. It sounds like a ballroom dance, but for a USO holder, it’s more like a slow-motion car crash.
Contango happens when the price of oil for delivery in the future is higher than the current spot price. This is actually the "normal" state of the market because it costs money to store and insure oil. However, it’s a nightmare for the United States Oil Fund stock.
Imagine this:
- USO sells its current oil contracts for $70.
- The next month's contracts cost $72 because the market is in contango.
- To stay invested, the fund has to sell low and buy high.
Even if the price of oil stays exactly the same all year, the fund will lose value every single month just from the cost of rolling those contracts. This is why, if you look at a long-term chart of USO, it often looks like a slide at a playground—it just goes down and down over the years, even when oil is relatively stable.
The 2020 near-death experience
We can't talk about USO without mentioning April 2020. That was the month oil prices actually went negative. People were literally paying others to take the oil away because there was nowhere left to store it.
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USO was nearly wiped out. The fund had to radically change its strategy. Previously, it just bought the "front-month" contract (the one expiring soonest). Now, it spreads its bets across several different months to avoid getting trapped again. It’s safer now, but it also means it doesn't track the "spot" price of oil as closely as it used to.
2026 Outlook: Is there a reason to buy now?
As we sit here in early 2026, the oil market is in a weird spot. Goldman Sachs and other analysts have been pointing toward a potential supply surplus. There’s a lot of oil coming out of the Permian Basin, and OPEC+ is always a wildcard. Some forecasters are even whispering about Brent crude dropping toward the $55 range.
If you think oil is headed for a slump, USO is obviously a bad move. But if you’re betting on a geopolitical flare-up or a sudden surge in demand that the market hasn't priced in, USO offers a way to play that volatility.
USO vs. Oil Stocks (Exxon, Chevron, etc.)
A lot of people ask, "Why not just buy ExxonMobil?"
Honestly, for most people, the answer is: You probably should.
- Dividends: Exxon (XOM) pays you to wait. USO pays nothing.
- Operations: Big oil companies can still make money when oil is $60 because they have refineries and chemicals businesses. USO only cares about the price of the contract.
- Taxes: You get a 1099 from a stock, not a K-1.
USO is a tactical tool. It’s for a trade you plan to hold for three days, not three years. It’s a way to bet on the price of oil without worrying about whether a specific company’s management is doing a good job.
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How to actually trade USO without losing your shirt
If you’re determined to trade the United States Oil Fund stock, you’ve gotta be smart about it. Here’s the "no-nonsense" playbook:
- Watch the Curve: Check if the oil market is in contango or backwardation. Backwardation is the opposite of contango—it’s when future prices are lower than current prices. This is the only time the "roll" actually helps you.
- Short-Term Only: Treat this like a hot potato. If you’re holding USO for more than a few weeks, the "decay" from the contract rolls will start eating your lunch.
- Check the Volume: Luckily, USO is extremely liquid. You can get in and out in seconds, which is its biggest advantage.
- Use it for Hedging: If you own a trucking business or something else that gets hurt when gas prices rise, a small position in USO can act as a "hedge" to offset your real-world costs.
Actionable Next Steps
If you’re still interested in adding oil exposure to your portfolio, don't just blindly hit the "buy" button on USO today.
Start by pulling up a "futures curve" chart for WTI crude—sites like the CME Group or even some advanced brokerage tools provide this. See if the market is in contango. If the prices for 3, 6, and 12 months out are significantly higher than the current price, wait. The "roll yield" will work against you.
Alternatively, look into USL (United States 12 Month Oil Fund). It holds contracts for the next 12 months rather than just the near term, which smooths out some of that contango pain, though it’s less "explosive" when oil prices spike.
Whichever path you choose, remember that the United States Oil Fund stock is a professional-grade tool being used by retail investors. Use it sparingly, watch the tax implications, and never, ever fall asleep on a long-term position.
Expert Insight: Most retail investors who lost money in USO didn't lose because they were wrong about the price of oil. They lost because they didn't understand the "roll." If you want to be successful, you have to trade the structure of the fund as much as the commodity itself.