Futures Spread

A futures spread is a trading position that involves buying one futures contract and selling another related futures contract, with the objective of profiting from changes in the price difference between them rather than outright price direction. In energy markets, futures spreads are widely used to express views on market structure, seasonality, relative value, and supply-demand dynamics. Common examples include calendar spreads, such as buying a near-month crude oil future and selling a later-month contract, or inter-commodity spreads, such as trading the relationship between crude oil and refined products. Futures spreads typically carry lower outright price risk than flat futures positions because exposure to general market direction is partially offset. Instead, the risk is concentrated in changes to the shape of the forward curve or relative pricing relationships. Spread trading is fundamental to energy markets, as it reflects storage economics, inventory levels, and expectations of future tightness or surplus. Commercial participants use spreads to hedge timing risk, while traders use them to arbitrage inefficiencies or express structural views. Liquidity in futures spreads is often deep, making them an essential tool for managing risk and volatility in energy trading portfolios.