Every contract that is about to expire always seems to be more expensive to buy than contracts expiring at a later date. For instance, the Sep15 contract is currently priced higher than the DEC15 contract. Since this appears to be a common trend, why don't people just buy the DEC15 contract now and sell in November, thereby effectively guaranteeing a profit?

3 Answers 3


To "lock-in" your profit, you need to buy the November Contract for $X per barrel, sell the December for $Z per barrel. Take delivery of the oil in November, pay an oil tanker or other facility to store the oil until December for a fee of $Y per barrel say.

Then finally, deliver the oil at some prearranged facility at the pre-agreed $Z per barrel price in December.

By doing all of the following, you can lock in $(Z-Y-X) dollars. Needless to say it's not easy to develop the business to do this operation and so potentially you would only entertain doing this when (Z-Y-X) is much greater than 0.

Hence, you might be able to observe that Dec is much higher than Nov contract, but might still not be high enough for this to be a worthwhile operation. Thus it's not really an arbitrage.


The topic here is contango and backwardation.

This is not a risk free profit as the market can shift from being in contango to backwardation. So right now the front month is priced higher than the farther out month, but this could also reverse.


The November contract and December contract are effectively separate instruments and not interchangeable. So a November contract can't be sold as a December one. However, if you can take delivery of thousands of barrels of oil you can buy oil on the November contract and sell it on the December one. The December contract is for oil delivery at the end of December, so it couldn't possibly be sold for delivery in November.

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