WTI oil's $5 gap explained by futures contract rollover

Overnight, WTI crude oil dropped from about $101 a barrel to roughly $96. That might appear to be a $5 decline driven by a fundamental factor, but it was actually caused by what is known as a futures rollover. Instead of a sudden crash in crude's value, the $5 gap simply stems from the difference between two futures contracts.

Typically, when traders talk about the price of WTI, they are referring to a futures contract on the NYMEX. However, WTI futures come with various delivery months, each with its own expiration. For instance, separate contracts exist for October 2026, November 2026, December 2026, and beyond. These contracts don't always trade at identical prices. The October contract was near $101.3, while the November contract was around $96.6.

Instead of requiring traders to manually change between individual contracts, most retail platforms show a continuous WTI futures contract. That continuous contract tracks the most heavily traded futures month. As liquidity shifts from one contract to the next, the platform may switch months. A chart that previously displayed October WTI and then switched to November WTI could suddenly show a move from $101 to $96. The chart merely changed the contract it was referencing.

Why do different futures contracts have different prices?

A futures contract's price reflects more than just the current spot value of crude — it also accounts for expectations and the costs of holding the commodity until the delivery month. A simplified expression of this relationship is: Futures price ≈ Spot price + financing/storage costs − convenience yield.

For physical commodities like oil, various factors — inventories, storage capacity, transport costs, interest rates, and expectations of future supply and demand — can affect the relationship between delivery months. That gives rise to what traders call the futures curve.

Contango versus backwardation

If later contracts trade at lower prices than earlier ones, the market is in backwardation. If later contracts trade at higher prices, it is in contango. Contango frequently happens when supply is ample relative to immediate demand, with traders prepared to pay extra for future delivery. Backwardation tends to arise when current physical supply is scarce, and buyers pay a premium for the commodity now rather than later. Contango does not always signal an expectation that prices will rise, nor does backwardation always signal an expectation that prices will fall.

The spread between contracts can widen particularly when the physical oil market faces major supply disruptions or uncertainty. WTI has been near the $100 mark amid disruptions and geopolitical risks. Under those conditions, prices for different delivery months can diverge significantly.

As traders roll their positions forward before expiration, the futures contract with the most liquidity tends to gain importance. Current data reveals significantly higher open interest in November WTI than in October WTI, indicating that trading activity has been moving to the November contract.

If one platform displays WTI at $96 and another major financial source shows it around $101, don't automatically assume an error. They could just be referencing different futures contracts.