Energy futures

Definition

Energy futures — WTI and Brent crude, RBOB gasoline, heating oil/ULSD, natural gas — are the pricing benchmarks of physical energy, and the most physically-constrained contracts a generalist meets: storage capacity, pipeline geography, and delivery mechanics are not background here, they set prices. The April 2020 episode — front-month WTI settling at −$37.63 — is the permanent exhibit that these contracts price PHYSICAL reality, storage included.

How it works / structure

• Specs (WTI reference): 1,000 barrels, physical delivery at Cushing, Oklahoma (pipeline hub — the delivery point IS the price; Brent is seaborne and cash-settled against an index), monthly expiries deep out the curve (ms-contract-specs).
• Curve structure: contango/backwardation swings are wider and more meaningful than in financial futures — storage economics bound contango (until storage fills), shortage pricing drives violent backwardation (strategy-futures-calendar-spread is a primary energy trade, not a sideshow; ms-futures-roll drag on long positions in contango is first-order).
• Natural gas specifics: extreme seasonality (winter demand), weekly storage reports as scheduled events, and a documented history of trader blowups on spread positions — the highest-volatility major contract.
• Product spreads: crack spreads (crude → products) are the refining-margin trade (strategy-inter-market-spread).

When it applies

Macro and inflation expression (macro-commodity-linkages, macro-inflation-linkages — energy is the volatile tail of CPI); curve/storage theses; seasonal hypotheses with the small-sample caveats (regime-seasonality); geopolitical supply-event responses (lens-event-catalyst).

Risk profile & failure modes

• Delivery-point physics: April 2020 — longs unable to take Cushing delivery paid to exit as storage filled; the CFTC interim report documents the episode; expiry-adjacent positioning in physical contracts is a specialist zone.
• Roll drag in contango: long “oil exposure” via front-month rolls in steep contango has historically bled double-digit annualized roll costs in some periods — the label and the return diverge (ms-futures-roll).
• Headline gaps: OPEC decisions, wars, and hurricanes move energy overnight beyond any technical stop.
• Natural gas widow-makers: the March/April spread and its relatives have documented fund-ending episodes; spread margin credits understate stress moves (ms-futures-margin).

Evidence & limits

Contract mechanics are exchange-documented; the negative-price episode is CFTC-documented. Storage-theory pricing (curve bounds from storage economics) is established commodity-finance literature (ext-commodities carries the theory citations). Seasonal patterns are real physical phenomena with small statistical samples — stated per regime-seasonality discipline.

Falsifiable-thesis examples

Illustrations only, not signals:

• “WTI’s front/second spread will move from contango into backwardation within 60 sessions (inventory-draw thesis)” — falsified by the spread series.
• “US natural gas storage will end the injection season below the 5-year average (bullish winter-basis thesis)” — falsified by the EIA storage print.

Cross-references

• Theory home: ext-commodities; macro linkage: macro-commodity-linkages, macro-inflation-linkages
• Primary trades: strategy-futures-calendar-spread, strategy-inter-market-spread (cracks), strategy-futures-carry
• Mechanics: instrument-futures-contract, ms-futures-roll, ms-futures-margin
• Event discipline: lens-event-catalyst, regime-seasonality