Commodities

The futures curve slopes up when the market pays for storage, down when having the barrel today commands a premium. Same commodity, both regimes.

• Contango = storage + financing priced in. Backwardation = scarcity now, convenience yield high.
• Oil flipped regimes: deep contango 2015–17, backwardation through much of 2021–22.
• April 2020, WTI at −$37: storage full, expiring longs paying to escape delivery — contango's reductio ad absurdum.
• Curve shape is never trivia — it's the physical constraint of the moment, priced.

Funds can't hold spot barrels, so they roll futures — and in contango every roll buys dear and sells cheap. Over years, the gap compounds into the defining fact of commodity indexing.

• Contango drags, backwardation pays — the roll, not the price view, often decides the outcome.
• Cautionary tale: post-2009 natural-gas ETFs — gas roughly flat, funds down enormously, all roll cost.
• Check the curve before the thesis: right about the commodity, wrong about the curve, is still losing.
• The cost-of-carry calculator above extracts the implied roll from any spot/futures pair.

Commodities are the only asset class with a weather forecast in the pricing model — but known seasonality is already in the curve. Only deviations pay.

• January gas trades above July gas all year round — "buy before winter" earns nothing by itself.
• The tradable object: inventories versus seasonal normal — which is why EIA storage Thursdays move markets.
• Full storage buffers shocks (flat curves, contango); empty storage removes the buffer (spot decouples — Europe's 2021–22 gas winter).
• Professionals trade the spreads: March/April gas — the "widow-maker" — isolates the seasonal gap from the price level.

The oldest derivatives market keeps writing new case studies:

• 1848 — the Chicago Board of Trade formalises grain forwards into futures.
• 1973/79 — oil shocks: energy becomes the macro commodity.
• 1980 — the Hunt brothers corner silver — and margin rules end the corner.
• 2005 — index financialisation (GSCI et al.): commodities become a portfolio "asset class", roll costs and all.
• 2008 — oil at $147 then $34 within months.
• 2020 — WTI settles at −$37: storage constraints price in public.
• 2021–22 — the European energy crisis: gas up 10×, power records, utility margin calls in the tens of billions.
• 2022 — LME nickel: a 250% squeeze, cancelled trades, a lawsuit era — and a lesson in exchange governance.
• 2005–now — the EU ETS matures from €5 oversupply to a €100, MSR-managed policy asset (see carbon allowances).

• Exchanges: CME Group (WTI crude, natural gas, grains, precious metals), ICE (Brent crude, European gas), the LME (base metals, with its unique warehouse and date structure), EEX and Nasdaq for European power.
• Price reporting agencies: Platts and Argus assess physical prices where no exchange trades — their published assessments settle a large share of real-world physical contracts.
• Physical traders: Vitol, Trafigura, Glencore, Cargill and peers move the actual barrels and cargoes; their logistics knowledge is the information edge financial players lack.
• Producers and consumers: oil majors, miners, utilities, airlines and food processors — the hedgers whose flows the speculative side exists to absorb.
• Regulators: the CFTC in the US, national energy regulators in Europe, plus the exchanges' own position limits and warehouse rules.
• Where the data lives: the EIA (US energy inventories, weekly), USDA (crops), the LME and exchange warehouse stocks, and the CFTC's Commitments of Traders positioning report — all free and market-moving on release.

The distinction that governs everything here: storable commodities have a cost-of-carry anchor; unstorable ones do not. Oil obeys arithmetic between spot and futures; electricity obeys the weather.

1. Storable or not? Storability decides whether the futures curve has an arbitrage anchor at all.
2. Where am I on the curve, and what does the roll cost? In contango the roll can outweigh the price view entirely.
3. Inventories versus seasonal normal — the deviation is the tradable information; the season itself is already priced.
4. Who is the marginal producer? Their cost sets the floor; the marginal consumer's substitution sets the ceiling.
5. What are the delivery mechanics? If you cannot take delivery, know exactly when you must be out.
6. Position limits and expiry calendar — both are published, and both have ended trading careers.

• Right about the commodity, wrong about the roll — the most common way to lose money while being correct.
• Ignoring physical delivery: April 2020's negative oil price was a delivery-mechanics event, not a demand event.
• Treating an index product as spot exposure — the tracking gap compounds over years.
• Weather forecasts as an edge: the public forecast is in the price within minutes.
• Concentration in a single hub or warehouse — the LME nickel squeeze was a structural, not a fundamental, event.
• Backwardation read as bullish without checking whether it reflects scarcity or simply high storage costs elsewhere.