ETF Spotlight Sep 21, 2026 31m 16m saved
With John Love, President and CEO at United States Commodity Funds
WTI sits just above $101 a barrel and Brent around $104, both down from the levels they touched earlier in the week after Saudi Arabia said its east-west crude pipeline could be back to half capacity within days.
The market read that as good news. John Love reads it as a market pricing the repair and ignoring everything that has not been repaired.
"my personal view is that the market, it is forward-looking. It's looking for good news, but I think we're underpricing the risks a bit"
John Love, president and CEO at United States Commodity Funds, on ETF Spotlight, runs the firm behind USO — an oil ETF that has been trading for 20 years and is up more than 125% this year on the show's own numbers, against a crude price up about 72%. The gap is not skill. It is the shape of the futures curve, and he spends a chunk of the interview explaining why.
The full interview is covered here so you can skip it. 31 minutes of audio, 15 minutes of reading.
Here are the 8 calls that matter.
Key Takeaways
The relief rally priced the pipeline repair and left the rest of the risk unpriced, on Love's reading
He puts the US strategic petroleum reserve at a level where some forecasters say you cannot safely pump more
China cut crude imports in the spring, drew down its reserves, and is buying again
Backwardation, not stock-picking, is why an oil ETF can beat the oil price — contango is a headwind to a futures fund's return and backwardation is a tailwind
It also tends to show up when inventories are short relative to demand
Owning 12 months of contracts instead of the front one mutes contango and backwardation alike, because both concentrate at the front of the curve
The tight spots now are diesel and jet fuel rather than crude
Love puts Russia at roughly half its historic refinery capacity
Drivers can cut back on gasoline; truckers cannot cut back on diesel
Copper's constraint is a discovery rate that collapsed decades ago, not this year's demand
A new greenfield mine takes 15–20 yrs to open, so a discovery tomorrow changes nothing this decade
Higher rates are a headwind for gold because gold produces no income, and central-bank buying is the offset
Broad commodities have tracked inflation more closely than gold alone, which cuts against the usual assumption
Single-commodity funds are for a view, and he expects them to be held temporarily; broad commodity funds are the permanent allocation
1. Oil's Two-Way Risk
Nina Mishra opened on the war, now in its seventh month, and on the surge that followed Saudi Arabia shutting its east-west crude pipeline after drone strikes. She put a note from Capital Economics to him: oil could stay above $100 a barrel well into next year if the conflict drags on. Her question was where prices go from here, with the caveat that nobody can predict how long the conflict lasts.
Love agreed on the unpredictability, and said the sell-side had reached the same place.
Even the banks are declining to forecast the conflict
I think it was JPMorgan or City Bank this morning said, "Yeah, we you know what? We just we have no idea."
John Love
He was unsure which of the two it was. On prices, he gave the levels as they stood.
Where crude actually was
I think it's about 101 right now. Brent oil is about 104.
John Love
Both were down from WTI at 104 and Brent touching 110 earlier in the week. The pullback came on reports the Saudi pipeline would be restored to about half capacity within a few days, after Saudi Arabia told Europe it would deliver no cargoes this month.
His objection to the relief rally
my personal view is that the market, it is forward-looking. It's looking for good news, but I think we're underpricing the risks a bit
John Love
The reason, he said, is not only that the pipeline outage will unwind but that the cushion behind it has thinned.
The reserve is close to its working floor
The US strategic petroleum reserve is down to 285 million barrels. That is about the level or maybe even below the level where some people have forecast that you can't safely pump anymore
John Love
Below that, he said, the concern is structural damage to the caverns where the crude is stored and to the machinery. Others put the floor lower. What he took from the drawdown flattening out in recent weeks is that the administration is being cautious with it — and that the same drawdown has happened across the world's inventories.
He named two further things the rally is not pricing. The Houthis still have the drones and the weapons to disrupt the pipeline again, and the map now has two choke points rather than one: the Strait of Hormuz and several places in the Red Sea. He allowed for a surprise — Iran throwing in the towel — and did not think it likely.
The one genuine offset earlier in the year has now reversed.
China stopped helping
They cut their imports of crude oil and that kind of helped the market in the spring. But now they have drawn down their reserves and their buyers again.
John Love
2. Contango and Backwardation
Mishra pointed out that the oil ETFs have done much better than the crude price they are supposed to track, and gave the show's own figures: USO up more than 125% year to date against WTI up a little more than 72%, and BNO up more than 115%. She attributed the gap to backwardation and asked Love to explain the terms for listeners who may not know them.
Love started with the shape rather than the definition. Crude futures trade in monthly contracts — October, November, December — and the curve they form behaves like a yield curve. When each further-out month is priced higher than the one before it, that is contango. When the near contract is the highest, that is backwardation.
What the two conditions do to a return
contango is a headwind to your return. When you have backwardation that's a tailwind
John Love
The mechanism is the roll. A futures fund sells the expiring contract and buys the next one, and in backwardation that swap is done at a lower price each time, which accretes. Love's point is that this happens even if the spot price never moves.
He addressed the common objection — that owning physical oil would avoid the whole problem — by noting that physical ownership carries storage, insurance, transportation and the opportunity cost of the money, which is what the curve is pricing in the first place. His aside: you would not store oil in your backyard.
Backwardation is also a signal, not just a payment
backwardation tends to materialize quite often when there is a shortage of something or when the market is worried about there being a shortage.
John Love
So on average, though not always, a fund earning roll yield is also telling you inventories are low relative to demand.
3. The Fund Lineup
Asked to walk through the products, Love started with the oldest.
USO has been running for 20 years and owns oil futures, historically mostly the front month, rolling to the second a few weeks before expiration. It has held other contracts when the fund got big enough to need the exposure. It is in the front month now and earning the roll yield — though he was careful to say the headwind would apply if the curve flipped. It has not: he said the market has been in backwardation for the last five years, before the Iran war exacerbated it.
USL is the 12-month version.
Why a strip changes the trade-off
That fund always owns what's called a future strip. It owns the 12 months the next 12 months of contracts.
John Love
Because contango and backwardation are concentrated at the front of the curve, spreading across a year mutes contango — and mutes backwardation with it. The fund is not a better mousetrap; it is a different exposure.
The rest of the energy range: BNO holds Brent, which he described as historically more exposed to geopolitical events, though this year everything is. There is a gasoline fund, and an active energy strategy that can go long, short or run spreads across gasoline, oil and natural gas. He pointed listeners at the prospectuses on the firm's website twice, unprompted.
Beyond single commodities are the broad funds. SDCI pays a dividend and issues a 1099; USCI is the K-1 version, with no dividend. He made the case for the category rather than the tickers: low correlation to stocks and bonds over decades, and opportunities in environments like this one.
The 2022 evidence he keeps coming back to
Commodities provided great diversification in 2022. We're seeing it again this year.
John Love
In fact, he said, every year since 2022 — but 2022 was when it was most visible, because stocks and bonds were down and commodities were up.
4. Diesel Is the Tight One
Mishra made the point that crude gets the headlines but refined products drive the real economy, and that pump prices and diesel costs hit household spending harder than the crude price does. She asked what the war has done to gasoline, diesel and jet fuel.
Love said the focus has moved. Early in the war attention was on crude itself, the input to everything else. Now the bottleneck is downstream.
Refiners are bidding against each other for barrels
the refiners have are competing for barrels to keep refining. You have refineries around the world that are way below their historic production. Russia in particular I think is almost half of its refinery capacity
John Love
That has fed straight into distillate prices. Gasoline ran up hard in July and August as the crack spread — the difference between the gasoline price and the crude input, which is roughly what a refiner earns — reached very high numbers. With the northern-hemisphere driving season ending, gasoline has come back a little. Heating oil, diesel and jet fuel have not.
Where demand destruction can and cannot happen
That's when the price gets so high that we drivers decide, okay, that's it. I'm not going to drive as much. You can't do that with diesel because truckers still need to get things to places
John Love
Truckers and shipping companies absorb it in their margins instead. Consumers can pull back on gasoline and, somewhat, on diesel — anything not absolutely critical. Jet fuel is already showing it: he said South Asia and Asia outside China have cut back on jet fuel and other refined products.
His framing for the whole thing is second-order. Not having enough crude produces not having enough refined product, and the question is at what point that hits the inflection where high prices cure themselves.
5. Copper's Supply Problem
Mishra raised copper, already tight on supply and strong on demand from electrification, grids and now AI data centers, and asked what the war has added.
Love wanted the supply side first, because it predates all of it.
The discovery rate is the whole story
The world's discovery of new copper is at just a fraction of what it was the rate that it was several decades ago.
John Love
Miners have not put capex into exploration. And even a major discovery would not help for a long time.
The lead time makes near-term supply fixed
if they somehow found a new green what they call a green field tomorrow it takes 15 to 20 years to open a new mine.
John Love
The existing mines are constrained too — most are in South America, some in Africa, with stability problems, infrastructure problems and strikes. Against that, demand keeps growing.
The horizon on his view
So over the longer term, 5 to 10 years, we're very bullish on copper.
John Love
He hedged it properly: copper can hit air pockets, and an economic downturn would affect it. His point is that even taking the AI and data-center story out entirely, the world still needs copper.
On the war's contribution, he was measured. The direct effect is smaller for copper than for energy, because of where copper is produced. The indirect effect is shipping: bottlenecks in the Middle East and elsewhere, the Panama Canal, the Mississippi River, ships competing for cargo and taking different routes.
Energy prices show up inside the copper price
it's more expensive to transport copper because of energy prices
John Love
Rerouting cargoes around the Horn of Africa or through the Suez Canal instead of the most efficient route, he said, is happening across many different commodities at once.
USCF runs two copper products. CPER holds copper futures and tracks an index of them, owning the front month or other months depending on the shape of the curve — the same backwardation-and-contango optimization he described earlier. CPXR is a 2x version of the same index, sub-advised, for investors who are very bullish and know how to use leverage properly.
6. Gold After the Big Run
Mishra noted gold rallied earlier this year and did remarkably well last year, but has struggled over the past few months, with higher rates one reason.
Love treated most of that as digestion after a three-year run through 2025, and the mechanism as straightforward.
Why rates bite gold specifically
Higher rates are a headwind against gold because gold doesn't produce income
John Love
The thesis, he said, is still in place: the disruption around the world, de-dollarization, the debasement trade, and gold's standing as a safety asset when there is panic. The structural bid has not gone away either.
Central banks have not stopped
central banks everywhere are I don't want to say hoarding gold, but they are pulling it in as they kind of pivot away from the dollar.
John Love
Buying has been choppier this year, he said, but China and Poland stand out, and that flow supports prices even as rates rise. He would not promise a repeat of the previous three years. Another run depends on what is going on in the world and, as he put it, on how bad other markets and the news cycle get.
Mishra asked about USG, which is not a standard gold fund. Most gold ETFs simply track the metal. USCF buys gold futures and writes an options overlay on them — covered calls, struck perhaps 8–10% out of the money, which generate income for the portfolio over time.
The trade-off, stated plainly
we can offer a little different profile for an investor who wants exposure to gold but also wants that regular dividend income
John Love
The cost is tracking: the fund will not follow gold as precisely as a purely long position.
The strategy is the ticker's description
I think really the strategy is in the name gold plus income.
John Love
7. What Commodities Are For
Mishra's last question was the portfolio one. Given that futures-based commodity ETFs carry contango, backwardation and in some cases leverage, are they short-term trading instruments or can they hold a longer-term place?
Love split the answer by product type. Broad commodities are an allocation everyone should have some of.
The diversification case in one line
It is something that has zigged when stocks and bonds have zagged.
John Love
And the inflation case is where he was most direct, because it cuts against the default assumption.
Gold is not the best inflation hedge in his own lineup
a lot of people look to gold for inflation protection but broad commodities have historically had a stronger correlation to inflation than gold alone.
John Love
He was clear that commodities have bull and bear markets like anything else and do not only go up.
Single-commodity funds are for expressing a view — someone who thought oil had further to run after the war broke out, for instance. Backwardation gives a little more room to hold such a position, because the roll yield offsets a fall in spot and enhances a rise, with no guarantee attached. Contango is where to be cautious with any single-commodity ETF. He also described a core-satellite version: broad commodities as the core, a single commodity where conviction is genuinely strong. Copper is his own example of a long-term thesis that might justify it, with the caveat that nothing goes up forever.
How he expects the two to be used
we see people probably more temporary with the single commodities and more looking at permanent allocations when they look at broad commodities.
John Love
8. Futures vs Physical Gold
Mishra closed with her own recap, and it carried an argument Love had not made. She ran back through the tickers — USO as the most popular oil commodity ETF and USCF's best performer, BNO for Brent, CPER for copper, UGA for gasoline — and then made the structural point that most of these funds hold futures because the underlying commodity is impractical to store.
Gold is the exception.
Why physical gold ETFs exist and physical oil ETFs do not
gold's high value relative to its physical size is also an important reason that physical storage works well.
Nina Mishra
Her recommendation followed from it, and it was hers rather than her guest's.
The host's own preference
in case of gold, we generally prefer physically backed gold ETFs if you are investing for the longer term
Nina Mishra
She named two she has discussed before as ultra-cheap physically backed options: GLDM from State Street and IAUM from iShares.
Bonus Insights
He expects volatility either way
Asked for the outlook if the conflict is not resolved, Love's answer was short: prices continue to stay high and possibly get higher. He put the market in a "tough spot out there".
The terms put listeners off before the explanation starts
they're kind of goofy terms when people first hear them and their eyes tend to glaze over.
John Love
His fix was to give the simple version — headwind and tailwind — before the futures-curve detail, which is the order he used.
He would not let the roll-yield point stand unqualified
Having explained why USO benefits from backwardation, Love immediately added that he would be remiss not to say the headwind of contango applies if the market flips. The last five years have been backwardation, so it has not come up.
Love's bottom line is that the oil market has priced a partial repair and left the rest of the risk unpriced, and that for most investors the useful exposure is a broad commodity allocation held permanently rather than a single-commodity fund held on a view.
Products, Companies & Tools Mentioned
United States Commodity Funds (Love's firm; he twice sent listeners to the prospectuses on its website rather than answering product questions from memory)
United States Oil Fund (USO) (20 years old, mostly front-month crude futures, rolling to the second month before expiration; the show's numbers put it up more than 125% year to date)
United States 12 Month Oil Fund (USL) (Owns the next 12 months of contracts, which mutes contango and backwardation together because both concentrate at the front of the curve)
United States Brent Oil Fund (BNO) (Brent exposure, which Love says has historically been more sensitive to geopolitical events)
United States Gasoline Fund (UGA) (Named in the host's closing recap of the firm's energy lineup)
United States Copper Index Fund (CPER) and its 2x version (CPXR) (CPER tracks a copper futures index and shifts along the curve depending on backwardation or contango; CPXR is the sub-advised leveraged version)
USCF Gold Strategy Plus Income Fund (USG) (Gold futures with a covered-call overlay struck 8–10% out of the money — income at the cost of tracking gold precisely)
SummerHaven Dynamic Commodity Index Fund (SDCI) and United States Commodity Index Fund (USCI) (The broad commodity pair: SDCI pays a dividend and issues a 1099, USCI is the K-1 version)
SPDR Gold MiniShares (GLDM) and iShares Gold Trust Micro (IAUM) (Mishra's own picks as ultra-cheap physically backed gold ETFs for long-term holders)
Capital Economics (The host cited its note saying oil could stay above $100 a barrel well into next year if the conflict drags on)
JPMorgan and Citi (Love could not recall which of the two published it, but quoted one of them saying they had no idea how the crisis unwinds)
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