CONTANGODecay
The roll is not free.
A fund that holds crude futures cannot simply keep them. Every month it sells the contract about to expire and buys the next one along. When the next one costs more, that trade quietly shrinks the position — and it happens whether or not the price of oil moves at all.
The mechanism
Suppose the expiring contract trades at $70.00 and the following month at $71.05. The fund sells one and buys the other, so the same money now controls 0.9852 of the barrels it controlled a moment earlier. Nothing was lost to a bad trade. The shape of the curve took it.
Repeat that twelve times and compounding does the rest. This is why a chart of an oil fund and a chart of crude itself separate over years even though they move together day to day.
Monthly premium here
Exposure kept per roll
After twelve rolls
At other curve shapes
The drag scales with the premium, and reverses when the curve does.
| Monthly premium | Curve shape | Exposure kept per roll | Effect over 12 rolls |
|---|---|---|---|
| -0.5% | Backwardation | 1.0050 | +6.20% |
| +0.5% | Contango | 0.9950 | -5.81% |
| +1.0% | Contango | 0.9901 | -11.26% |
| +1.5% | Contango | 0.9852 | -16.36% |
| +2.0% | Contango | 0.9804 | -21.15% |
Illustrative arithmetic, not a measurement. It assumes one roll a month at a constant premium and ignores fees. Real curves change shape constantly, and in 2020 the front month went negative. Measuring the drag that actually occurred needs a futures-curve data source, which is not wired up yet.
The other side
What the equity does instead.
XOM has no contract to roll. It owns reserves and refineries, and its profits move with crude through operations rather than through the futures curve. In exchange it carries everything a company carries: capital discipline, refining margins, regulation, and the fact that it can underperform the barrel for its own reasons.
Onchain there is one more wrinkle. Dividends on Robinhood Chain are not paid out as cash. They are folded into each token's multiplier, so the token quietly comes to represent slightly more stock over time. That is why an integration reading the raw quote feed alone understates what an XOM token is worth.