Forward curve

The forward curve represents the prices of a commodity or asset for delivery or settlement at future dates. In energy markets, forward curves are central to understanding market expectations, supply-demand balances, and storage economics. A curve in backwardation, where near-term prices are higher than future prices, often signals tight prompt supply. A contango curve, where future prices exceed spot prices, may incentivise storage and deferred consumption. Traders use the forward curve to assess arbitrage opportunities, hedge timing risk, and value physical assets such as storage or generation capacity. Changes in the shape of the curve can reflect shifts in fundamentals, sentiment, or risk premiums. Forward curves also influence investment decisions, as long-dated prices affect project economics and capital allocation. Understanding curve dynamics is essential for energy trading, as many strategies are based on relative pricing across maturities rather than outright price direction.