The Source S&P GSCI crude oil enhanced T-ETC (XETRA: SEWTI) will choose between the next month and six-month contracts when rolling its futures market positions, depending on the steepness of the oil forward curve. If the two-month oil futures contract is priced at more than 0.5% above the front month contract (i.e., the oil futures market is in contango by more than this amount), the T-ETC will roll its exposure to the six-month futures contract. If there is a less upward-sloping or downward-sloping futures curve the roll will be effected into the two-month contract.

The T-ETC will also adopt a different timetable to the existing S&P GSCI commodity indices when rolling contracts by switching from a roll on the fifth to ninth business days of each month to the first to fifth business days.

Oil has been in steep contango for most of this year, causing tracker products which roll automatically from the expiring front month futures contract into the next monthly contract to suffer a significant negative “roll yield”.

In a press release to accompany the new T-ETC launch, Source points out that the United States oil fund (NYSE Arca: USO), which tracks the NYMEX WTI crude futures contract and rolls its exposure monthly, increased in price by 10.36% between 2 January 2009 and 30 October 2009, while the spot NYMEX WTI crude price was up 66.16% over the same period.

USO is the largest crude oil tracker in the world, with just over US$2 billion in net assets. In Europe, competing oil tracker products are offered by ETF Securities. The ETFS crude oil, Brent and WTI ETCs track the DJ-UBS crude oil sub-index, ICE Brent oil futures and NYMEX WTI oil futures, respectively. The Brent and WTI ETCs track different maturities along the oil futures curve (from one month to three years), allowing investors themselves to choose which part of the curve they wish to be exposed to.

The ETF Securities oil ETCs have a combined US$1 billion in net assets, with the vast majority of funds invested in the versions tracking front month futures. The issuer also offers leveraged and short versions of its oil ETCs, which have an additional US$180 million in invested assets. Source’s existing S&P GSCI crude oil ETC, which tracks an index representing a rolling position in the front month NYMEX WTI contract, has US$1.3 million in assets outstanding.

There are also differences in counterparty exposure between the various oil trackers.

Source’s T-ETCs are backed by US Treasury bills and cash, held in a segregated account with Deutsche Bank as trustee and Wells Fargo as portfolio administrator.

The ETF Securities crude oil ETC is backed by matching commodity contracts purchased from UBS AG, whose payment obligations are backed by collateral covering 100% of the daily mark-to-market value of outstanding contracts, with the collateral held by BNY Mellon in a segregated account.

The ETFS Brent and WTI ETCs depend for their performance on contracts provided by Royal Dutch Shell Group and thus carry credit risk to Shell Trading Switzerland, although the ETC prospectuses allow for energy purchase contracts to be made with other major oil companies.

USO depends primarily on direct purchases of oil futures on the NYMEX exchange, which uses the CME Group’s central clearing facilities, although the fund prospectus states that USO can also conduct trades in non-US markets (which may not have central clearing corporations) and buy negotiated oil contracts with third parties, incurring full credit risk to those counterparties.

The Source and ETF Securities ETCs carry fees of 0.49% per annum, with the exception of ETF Securities’ leveraged and short ETCs, which charge 0.98% per annum. USO has a management expense ratio of 0.96%.