Oil Futures

The contracts that price global oil. WTI and Brent futures, term structure and forward curves, contango vs backwardation, rolling front-month contracts, calendar spreads, and what the futures market is telling you about supply expectations 12 months out.

What Are Oil Futures?

An oil futures contract is a standardized agreement to buy or sell a specific quantity of oil at a predetermined price on a specific future date. The WTI contract (CME/NYMEX) covers 1,000 barrels per contract, deliverable at Cushing, Oklahoma. The Brent contract (ICE) covers 1,000 barrels, deliverable at Sullom Voe terminal in Scotland. Both settle financially or, for a small percentage, by physical delivery.

Futures markets provide three essential functions: price discovery (transparent pricing reflecting collective market view), risk management (producers and consumers hedge price exposure), and liquidity (allowing anyone to take long or short positions). Daily WTI futures volume exceeds 1 million contracts — equivalent to more than 1 billion barrels of notional value traded every day.

The Forward Curve and Term Structure

Futures exist for many delivery months simultaneously — WTI trades continuously with contracts for every month for the next 9+ years. Plotting the prices across delivery months creates the forward curve or term structure. The shape of this curve reflects market expectations about future supply and demand.

Backwardation (downward-sloping curve): near-term prices higher than longer-dated. Signals tight current supply — the market pays a premium for immediate delivery. Current WTI is in backwardation due to the Hormuz supply disruption.

Contango (upward-sloping curve): near-term prices lower than longer-dated. Signals abundant current supply with expected future tightening. Storage is economically attractive in contango. The 2020 shale glut created the steepest contango in history; the May 2020 WTI contract briefly traded negative as storage filled.

Contract Month	WTI Est	Brent Est	Notes

Illustrative values reflecting current backwardation structure. Live front-month pricing shown above.

Contract Rollover and the Front Month

Each futures contract has an expiration date. The contract closest to expiration is the front month or prompt contract — typically the most actively traded. As expiration approaches, traders roll positions from the expiring contract to the next month to maintain exposure without taking physical delivery.

The WTI front month expires on the third business day before the 25th of the month prior to delivery. So the May 2026 WTI contract expires around April 22. After that date, the June 2026 contract becomes the new front month. Rolling is typically done 5-10 days before expiration to avoid physical delivery risk. News outlets quoting oil prices almost always reference the front-month contract.

Frequently Asked Questions

What are oil futures?

Standardized contracts to buy or sell oil at a predetermined price on a specific future date. The WTI contract (NYMEX) covers 1,000 barrels deliverable at Cushing, Oklahoma. The Brent contract (ICE) covers 1,000 barrels deliverable in Scotland. Both trade electronically 24 hours a day on weekdays with deep liquidity.

What is the difference between spot and futures?

Spot prices are for immediate physical delivery. Futures prices are for delivery at a specific future date. They usually differ because of storage costs, financing costs, and market expectations. The difference between spot and the nearest futures contract is called the basis.

What is contango?

Contango describes a futures curve where later-dated contracts trade higher than near-term contracts — an upward-sloping curve. This signals expectations of tightening supply ahead, or currently abundant supply. Contango creates incentives for storage arbitrage: buy spot, sell forward. The 2020 shale glut produced extreme contango.

What is backwardation?

Backwardation describes a futures curve where near-term contracts trade higher than later-dated ones — a downward-sloping curve. This signals tight current supply — the market pays a premium for immediate delivery. Current WTI is in backwardation due to the Strait of Hormuz supply disruption. Backwardation is traditionally considered bullish for near-term prices.

Why do futures spreads matter?

Calendar spreads (the price difference between two delivery months) are the purest signal of market expectations. A widening backwardation (front month rising vs back) signals tightening supply. A widening contango signals surplus. Spread traders trade these relationships directly without taking outright oil price risk.

How do futures influence oil market expectations?

Futures prices aggregate the views of thousands of participants — producers, refiners, hedge funds, banks, airlines, speculators. They provide transparent, real-time pricing that reflects collective expectations. OPEC decisions, geopolitical events, and inventory data move futures within seconds.

How do I read a futures curve?

Plot prices on the y-axis, delivery months on the x-axis. If the line slopes down left-to-right, that is backwardation (near months higher). If it slopes up, that is contango (near months lower). The steepness indicates the strength of the signal.

Can individuals trade oil futures?

Yes, through a futures brokerage account. However, oil futures are highly leveraged — a WTI contract has $95,000+ notional value with margin of only $5,000-10,000. Most individual investors gain oil exposure through ETFs (USO, BNO) or oil company stocks rather than direct futures trading.