Futures Curve

Think of the futures curve as a photograph of market expectations about supply, demand, and carrying costs at many points in time — all taken simultaneously. Each point on the curve is an actively traded futures contract with its own delivery month and its own price. Reading across those points from left (near-term) to right (long-dated) reveals whether the market is in contango (upward slope) or backwardation (downward slope). Our full explainer on contango and backwardation walks through both shapes in detail.

Crude oil is the classic example. Its futures curve might span two or more years of monthly contracts — from the front month (the soonest delivery) all the way out to contracts delivering oil years later. Suppose the front month is $80 per barrel and 12-month contracts are $84; the curve is upward-sloping, and the $4 premium reflects storage costs. A sudden supply disruption can flip that curve sharply into backwardation within hours, compressing the difference or reversing it entirely.

The curve's shape matters because it affects real returns for anyone holding futures-based investments, such as commodity ETFs (exchange-traded funds — pooled investment vehicles that track a benchmark). Those products must regularly replace expiring contracts with new ones, a process called rolling. The curve's slope determines whether rolling is a headwind or a tailwind, captured in the concept of roll yield. Watching how the curve shifts over time is one tool analysts use to gauge changing supply-and-demand balances on live commodity data.