According to Market Realist’s commodities analyst:
Commodity ETFs like USO and UNG often do not track the performance of the underlying indices due to contango, or the market state where the price of an energy futures contract trades above the expect spot price at maturity. Since commodity ETFs purchase commodity futures contracts to mimic spot performance, they fall victim to contango as they roll their futures positions from one month to the next.
For example, an investor should be able to see clearly that during West Texas intermediate (WTI) crude oil’s recovery from January 2009 to April 2011, from $35/barrel to $112/barrel (+320%), USO, the United States Oil Fund LP ETF, only rose from $24 to $45 (87.5%).
The worst commodity performer in terms of contango is natural gas, represented by the UNG ETF. The roll cost for UNG can be greater than 8% per year, which can cause steep losses for the retail investor, despite a price appreciation in the underlying commodity. In the graph below, you can see that the value of the ETF has fallen 96.4% in 4 years, while natural gas prices have only fallen about 79%. This has been terrible for investors trying to capture the price movements of natural gas.