Brent Crude Oil Futures

How a Brent futures contract works

A Brent futures contract is an agreement to buy or sell 1,000 barrels of Brent crude for a specific delivery month at a price agreed today. In practice almost no one takes delivery. The contract is cash-settled at expiry against the ICE Brent Index, which is calculated from trading in the expiring month on its last day. Traders who want physical oil use an exchange of futures for physical (EFP) to swap their futures position into a forward cargo.

Each contract month trades for several years before it expires, so at any moment there are dozens of Brent prices: one for each future month. The front month, the nearest to expiry, is the one quoted in the news and in the live price above.

Expiry and roll: which month is the front month?

Brent expires earlier than many people expect. The contract for a given month stops trading at the end of the second month before it. Examples:

• The January contract expires on the last business day of November.
• The June contract expires on the last business day of April.
• The December contract expires on the last business day of October.

So in mid-October the front-month Brent contract is December, and in early November it is January. Quote services usually roll to the next month a few days before expiry, when trading volume shifts.

The Brent forward curve: contango and backwardation

Plot the price of every contract month and you get the forward curve. Its shape tells you more about the physical market than the headline price does:

• Backwardation means near months are priced above later months. Buyers pay a premium for oil now, which signals a tight market with inventories falling. Brent was in steep backwardation through much of 2022.
• Contango means near months are priced below later months. The market pays traders to store oil, which signals a surplus with inventories rising. In 2020 the contango was so deep that traders chartered tankers as floating storage.

Analysts track simple spreads such as M1–M2 (front month minus second month) and Dec–Dec (this December minus next December) to gauge tightness. A widening backwardation alongside a rising price confirms that physical demand, not just speculation, is behind a rally.

Who trades Brent futures

• Producers sell future production forward to lock in revenue.
• Refiners and airlines buy forward to fix input or fuel costs.
• Physical traders hedge cargoes in transit and arbitrage between grades and regions.
• Money managers, such as hedge funds, CTAs and index funds, take directional or spread positions. They are reported weekly by ICE and the CFTC.

Ways to get exposure to Brent

Besides the full ICE contract, there are CME's look-alike Brent (BZ) futures, options on Brent futures, exchange-traded products such as the United States Brent Oil Fund (BNO), and CFDs or spread bets offered by brokers in some countries. Each has a different cost of rolling, leverage and tax treatment. Leveraged products can lose more than the initial deposit.