[manyhats]

If you're trading, USO is fine.

If you're investing on a longer-term horizon (a year or more), the monthly futures roll where the USO fund sells the current month's oil contracts (because it doesn't want the actual oil to be delivered) and buys the following month's oil futures (normally at a higher price than what it sold the current month's at) will eat into any returns you get from price appreciation.

To put some numbers to the example, let's say the fund has 100 barrels of oil, and the current month's price is $20, and next month is $21. When it rolls the contracts, it sells 100 barrels for $2000, and buys 95 barrels, with $5 left over.

Fast forward a month. Prices have gone up by $1 for all months oil. It will sell 95 barrels for $22 ($2090, plus the prior month's leftover $5) and buy 91 barrels for $23, with $2 left over.

Fast forward another month. Let's say you owned the entire fund and decided to liquidate it. Prices for your contract have gone up another $1, so you sell your 91 barrels for $24, receiving $2184, and adding the extra $2 in cash you had gives you $2186. That's a 9.3% return in two months.

Compare that to the price of oil as reported in the news - it's the front month contract, so on the face of it, oil has gone from $20 to $24 (20% increase) while you've only made 9.3%.

The numbers are somewhat exaggerated here, and it can work the other way (current month more expensive than forward month) but is uncommon. This is why USO has historically been a bad long-term proxy for the price of oil.