An Empirical Investigation of Optimal Crude Oil Futures Rolling

When the first Commodity Futures Indices were constructed not much thought was spent on the rollover strategies. The Futures were in backwardation and one cashed in the roll-yield by simply rolling over from the most nearby Future to the next one. The only consideration was liquidity. Market conditions have changed in recent years. Contango is now the more frequent case. The roll strategy is more sophisticated in the second index generation. This investigation analyzes the performance of several rolling strategies for WTI and Brent Futures in the last 10 years. It is shown that one should avoid the crowd if one has to roll nearby Futures. The second generation indices have a clear edge. The performance of the different indices is similar, with the S&P Dynamic Roll Strategy having a slight edge. Optimal rolling is more important for the WTI Futures than for Brent Oil.