What are you actually looking at when you look at a commodity curve?
Most price charts are time series: one thing, plotted as it moved through the past. A commodity curve is the opposite kind of object. It is a cross-section — the prices, all quoted at the same instant, for delivery of the same commodity at many different future dates.
Read that again, because it is the hinge of the whole course. Nothing on a curve has happened yet. Every point is a live contract with its own order book, its own open interest and its own settlement price, and they are all trading right now.
The strip
An illustrative crude oil curve, all quoted this afternoon:
- Front month (M1) — $78.00
- M2 — $78.60
- M3 — $79.15
- M6 — $80.50
- M12 — $82.00
- M24 — $82.80
Practitioners call this the strip or the term structure. Three features of it are worth noticing immediately.
It slopes. The slope has a cause, and the cause is arithmetic rather than sentiment. That is Unit 1's job.
It flattens. The gap from M1 to M2 is 60 cents; the gap from M12 to M24 is 80 cents across a whole extra year. Deferred contracts move far less than the front, because whatever is happening to the physical market today mostly resolves long before then.
Liquidity is concentrated at the front. The nearest two or three contracts usually carry the overwhelming majority of volume. Prices two years out are real, but they are quoted in a thinner market by fewer participants.
What this course assumes, and what it adds
This course takes contract mechanics as read. If you need margin, daily mark-to-market, delivery and expiry, the Futures & Forwards course in Derivatives & Leverage covers them, and it introduces the words contango, backwardation and roll yield in their general form.
Here we do the commodity-specific version properly: where the slope comes from, why the model that produces it can only be enforced in one direction, how the roll converts a slope into realised money month by month, and what a curve tells you about the physical world — barrels in tanks, bushels in elevators, gas underground.
The trap in your data feed
There is one more thing to know before Unit 1 begins. Whatever price history you open, you get one line, not a curve — and it pays to know which line. Vendors commonly publish a continuous front-month series: successive front contracts stitched end to end, rolled automatically at each expiry. Others publish a spot assessment at a named delivery point, which is not a futures price at all.
That series is enormously useful, and it is a manufactured object: not spot, not any one contract, and not a position anyone could have held. Its construction rules matter, and we come back to exactly how much in Unit 3.
Try it now
- A year of crude is below. It is a continuous front-month series: on each date it shows the nearest contract, stitched to the one before it, all the way back. One number per day. Look at it for a moment and say what it is not — it is a history of a rolling position, and there is no second dimension in it anywhere.
- Now find the same commodity's full settlement strip on the exchange's own site (CME, ICE — the daily settlements are published free). Write the front six contract months in a column.
- Put the two side by side and say the difference out loud: one is a history of a rolling position, the other is today's price of time. The chart has one price for every date in the past; the strip has several prices for the future, all of them today.
A note on what we do here. EODHD Academy teaches how the machinery works. Nothing here is a recommendation to buy or sell anything, and nothing here forecasts a commodity price. Figures are rounded on purpose so the arithmetic stays visible.