Why is the return of an oil fund lower than the return on oil price? The contracts have to roll over at the end of the near expiration date. If it won't roll over then the contract oil barrels will be supplied to the fund.
The fund must sell the oil contract before expiration to companies that are willing to get the supply of oil. Is it true to say that these companies take advantage of the situation and buy the expired contracts at a lower price? This is the reason roll over of contract - contango, leading to lower return than oil itself?
Common explanations - which I think are wrong - are that rolling the contract for contracts with higher future price would lead to buying a smaller number of barrels. However this does not matter at all.
If you hold 100 barrels and the barrel price is $100, or you buy 50 barrels and the future barrel price is $200, in both scenarios you hold assets at a value of $10,000, which are similarly exposed to change in oil price.