After this guide you can
- Turn inventory and supply data into scenarios
- Distinguish spot and futures prices
- Understand expiry, rolling and contract-unit risk
Each commodity has its own economics
Oil depends on production, refining, transport and fuel demand; gas on weather, storage capacity and transmission infrastructure; grains on planting, harvest, weather and export restrictions. Do not transfer an analysis between commodities without checking these differences.
Compare inventories with expectations, seasonality and report components. A stock draw is not always bullish: it may reflect temporarily lower imports, or the market may have expected a larger draw. Multiweek changes and supply conditions may tell more than one number.
Which price is on the chart?
Oil at one delivery point differs from oil of another quality or location. Spot prices, front-month futures and continuous charts also have different definitions. Align symbol, month, quality, location and units before comparison.
Futures have last trading dates, settlement methods and sometimes delivery-related deadlines. Providers may close positions before exchange deadlines. Holding close to expiry without knowing these rules introduces risk beyond price direction.
What are contango and backwardation useful for?
When distant contracts cost more than nearer ones, the curve can be in contango; the reverse is backwardation. Storage, financing and immediate supply conditions shape it. The curve does not guarantee future spot prices.
A strategy repeatedly closing near contracts and buying distant ones faces roll effects as well as price changes. The difference between two contracts does not determine the whole return; price paths, roll timing and costs also matter. Futures-based funds or products can perform differently from commodity spot prices.
From contract units to event risk
Oil may quote dollars per barrel while another commodity uses entirely different units. A small screen movement becomes a large amount when multiplied by many contract units. Check tick value, units, quantity increments and settlement currency before ordering.
Plan for scheduled events, but production outages, political news and abrupt weather changes are not always scheduled. Size must fit adverse-move scenarios. Do not move a stop after news merely to keep it farther from price.
Educational calculation · hypothetical numbers
Why does the oil contract multiplier matter?
For a hypothetical instrument, entry is 80 dollars and stop 78.50 per barrel. This example does not specify any particular product.
| Step | Result and interpretation |
|---|---|
| Price distance | 1.50 dollars per barrel |
| Assumed 100-barrel contract | Theoretical risk per contract: 150 dollars |
| Assumed 1,000-barrel contract | Theoretical risk per contract: 1,500 dollars |
| Budget 150 dollars, minimum one contract | Only the first size equals the budget, before costs and slippage |
Once a cost reserve is needed, even the first contract can exceed the budget. Substitute actual symbol specifications; a cheaper commodity price does not necessarily mean a lower-risk contract.
Before submitting an order
- I identified commodity, price unit and contract month.
- I read expiry, roll, settlement or delivery rules.
- I reviewed supply events, inventories and seasonal factors.
- I converted tick and contract risk into account currency.
Mistakes to recognise
- Buying a futures instrument expecting exact spot-price returns.
- Ignoring expiry because the continuous chart does not stop.
- Applying oil analysis to gas without checking infrastructure and seasons.
Check your understanding
Does a more expensive six-month contract prove spot prices will rise by then?
Show answer and reasoning
No. Financing, storage, supply and demand at different maturities and other factors affect prices. The futures curve is not a forecast guarantee.
Key terms
- Tick
- The smallest permitted contract-price increment.
- Contract roll
- Closing the current maturity and opening a later one.
- Contango
- A condition where a later maturity costs more than a nearer one.
For further reading
This guide was independently written. The official sources below support further study of the concepts; product rules and local regulations may differ.
This guide is educational, not a personal buy or sell recommendation. Examples do not establish specifications of products offered by CAPITEX.