The spot price of oil is a single number describing a single moment, and the market it describes is mostly elsewhere. On April 20, 2020, West Texas Intermediate futures for May delivery settled at negative $37.63 a barrel, per CME Group settlement data — an event visible only in one contract month while longer-dated futures stayed positive. Market Today publishes information, not investment advice; this explainer covers commodity-market mechanics, not positions.
That day is the clearest demonstration in modern market history that oil is not one price but a whole curve of prices, one per delivery month, and that the relationships between them carry information the spot number cannot. Understanding the curve is the difference between reading a headline and reading the market.
What is a futures curve, and what does its shape mean?
A futures curve plots the price of contracts for delivery in successive months, from next month out to several years. Two shapes dominate. Contango, the normal state, shows later months priced higher, reflecting storage costs, insurance and the cost of capital tied up in oil sitting in tanks. Backwardation shows near months priced higher, which typically signals that the market wants oil now — supply is tight relative to immediate demand, per the U.S. Energy Information Administration's market explainers on price formation.
The slope is not decoration. When the curve is steeply in backwardation, holders of oil in storage have an incentive to sell it into the strong near-term price and drain tanks. When the curve is steeply in contango, the spread can exceed the physical cost of storage, and traders get paid to buy oil, store it and sell it forward. The curve is the market's instruction set for what to do with barrels.
Why did oil trade below zero in April 2020?
Storage arithmetic, at the end of a delivery chain. The May 2020 WTI contract required physical delivery at Cushing, Oklahoma, the contract's designated hub, and by late April 2020 available storage capacity at Cushing was filling fast, with utilization approaching its practical limits as reported by EIA weekly petroleum-status data at the time. Holders of expiring contracts who could not take delivery and could not find tanks had to pay someone else to take the obligation. Hence a settlement of negative $37.63, per CME Group's official record.
Notice what the event did not mean: oil everywhere was worthless. Brent futures, delivered by ship and not bound to Cushing's tanks, stayed in positive territory. June WTI, one month later, stayed near $20. One contract, one hub, one storage constraint — and the biggest intraday price distortion in the history of the contract.
How do inventory reports move the curve?
Through the same storage arithmetic, in smaller doses. The EIA publishes crude inventories at Cushing and nationwide every Wednesday, per its Weekly Petroleum Status Report, and the report is one of the most consistently market-moving statistical releases in commodities. Rising stocks push the near end of the curve down relative to later months, easing toward contango; falling stocks do the reverse. Traders watch the spread between the first two contract months — the calendar spread — as a real-time gauge of tightness that is subtler than the level of the headline price.
The curve also disciplines the physical system. Refiners buy crude against the curve, storage operators price tank space off it, and producers hedge future output on its later months. When the curve moves, physical behavior follows with a lag: tanks fill or drain, drilling plans expand or shrink. The EIA's own short-term market reporting treats inventory levels and the term structure together for exactly this reason.
What does the curve say that the spot price cannot?
Three things at once, which is why analysts who only quote spot are working with one instrument of the orchestra.
| Signal | Where it shows up | What it tends to indicate |
|---|---|---|
| Immediate tightness | First contract months | Near-term supply-demand balance at the delivery hub |
| Storage stress | Calendar spreads | How close inventories are to practical tank limits |
| Longer-run expectations | Dated contracts years out | What producers and consumers will pay to lock in future barrels |
The far end of the curve deserves its own caution. Long-dated prices reflect hedging flows and risk premia as much as genuine expectations, and they are thin markets. A five-year-out quote is a faint signal, easily over-read.
How should a careful reader follow oil prices, then?
By watching a short list of instruments together rather than any one of them alone:
- The prompt-month futures price, for the headline.
- The calendar spread between the first two or three months, for tightness.
- The EIA's Wednesday inventory report for Cushing and nationwide stocks.
- The Brent-WTI spread, for the Atlantic-basin arbitrage.
- The curve's overall shape — contango or backwardation — as the summary verdict.
None of this forecasts where oil trades next quarter; certainty about the future is not available in any tense. What the curve does offer is an honest, continuously updated reading of how the market is pricing time and storage right now. That is a more durable skill than any single price print. The evidence lives in exchange data and EIA statistics, published weekly, free to anyone willing to read past the headline number.
