How to Profit from the USO Oil ETF: A 2025 Strategic Analysis
It’s present in our daily lives far more than you’ve likely ever imagined. Today, we’re talking about petroleum and how, alternatively, we can invest in it through the USO ETF. This ETF is traded on the NYSE and is accessible to us as international investors.
However, it’s worth learning about petroleum first to understand why it has been one of the world’s most discussed commodities for decades, and why nations fight over this resource. In the following sections, I’ll tell you everything you need to know.
A General Overview
Since ancient Egypt, petroleum has been in use, in forms like bitumen and even for paving roads. However, it was only in 1859, when Edwin Drake intentionally drilled a well in Pennsylvania, that the commodity truly gained significant economic relevance. At that point, gasoline and its derivatives were subsequently developed and increasingly refined for our daily use.
Market Applications
This is undoubtedly the part that I found most interesting in my research. Let’s list the applications of our dear petroleum:
- Plastics: A vast array of polymers like polyethylene (packaging), PVC (pipes), and PET (bottles) are derived from oil.
- Asphalt: Used for paving roads, highways, and airports.
- Fertilizers: Ammonia, a key component in nitrogen fertilizers, is often synthesized from natural gas, which is extracted alongside petroleum.
- Pharmaceuticals and Cosmetics: Various medicines, cosmetics, and perfumes contain petroleum-derived compounds.
- Textiles: Synthetic fibers like nylon and polyester have their origins in oil.
- Lubricants: Essential oils and greases for reducing friction in engines and machinery.
- Fuels: Gasoline, Diesel, Kerosene, and Liquefied Petroleum Gas (LPG) are the most well-known derivatives.
Opportunities in the Current Market
- OPEC Production: OPEC has agreed to increase oil production, which should cause prices to decrease initially. However, once supply and demand stabilize, prices will likely rise again.
- Trump’s Tariff War: The ongoing tariff disputes can significantly sway oil purchases and sales worldwide.
- Commitment of Traders (COT): The COT report is currently favorable. Producers and refiners are holding strong short positions, while Managed Money is maintaining a very strong long position, suggesting a belief in a short/medium-term price increase.
Investment Risks
Of course, we are not so naive. Every return involves risks, and I want to highlight some of them here.
- Extreme Price Volatility: The price of a barrel of oil is one of the most volatile in the commodities market, influenced by supply/demand dynamics and financial speculation.
- Geopolitical Instability: A significant portion of the world’s oil reserves is in politically unstable regions. Conflicts, attacks, and sanctions can disrupt the global supply and cause sudden price spikes.
- The Inevitable Energy Transition: The biggest long-term risk is the global shift to cleaner energy sources. The rise of renewables and electric vehicles threatens the structural demand for fossil fuels in the coming decades.
Key Catalysts – Summary
- Increased oil production, affecting supply and demand.
- The US tariff clash with the rest of the world.
- Strong long positions in futures contracts by traders and investors.
- Caution with price volatility, which can be abrupt.
- Political instability can interfere in the short term.
Composition of the USO ETF
- WTI CRUDE FUTURE SEP25: 60.89%
- WTI CRUDE FUTURE OCT25: 26.11%
- TRS MACQUARIE MQCP361E 07212025: 7.87%
- TRS SOC GEN SGIXCWTI 06202025: 7.20%