Kalshi wants one oil trade to last almost forever
Typical oil futures have a calendar attached to them. The trader buys exposure, the contract moves closer to expiration, and any trader who wishes to remain in the trade needs to roll into another month. This rollover business becomes boring until funds start bleeding due to transaction costs, price spreads, and poor timing of trades.
In effect, Kalshi is saying: Why do this every few weeks or months?
The contract it proposes would make one position last for ten years, while employing a funding strategy that keeps the price tied to the WTI market. For those holding crude exposure over extended periods of time, this may mean simpler mechanics. There will be no need to constantly roll contracts, as well as reduced risks of mistakenly rolling into a physical delivery situation at Cushing, Oklahoma, where the trader had no intentions of taking possession of the barrel of oil.
The company also believes that a single large duration contract would help keep the trading activity in one place instead of spreading liquidity across a long series of expirations.
That idea is arriving at a pretty convenient moment.
The Iran war has turned crude into one of the most aggressively traded macro assets of the year. Hedge funds, institutions and individual traders have all been chasing energy swings as geopolitical headlines keep jerking prices around.
WTI futures have traveled through roughly a $60-per-barrel range since January, which is exactly the kind of environment where traders start caring a lot more about execution, rollover costs and whether their instrument is flexible enough.
The contract would be traded 24 hours a day, Monday through Friday. While the contract would not truly last forever, 10 years is close enough that the average person using it would likely not mind the difference in a regular trade.
There is one problem, however: regulators cannot treat this as an everyday exchange listing.
Derivatives that are perpetual in nature undergo closer scrutiny, so Kalshi cannot self-certify the contract as many exchanges can with other products. The CFTC must review the filing on its own merits.
The filing has come at an inopportune time for CME Group, which recently abandoned its attempt to change the rules of oil trading.
CME backed off, while Kalshi is pushing further
CME had been developing an early version of the contract that would allow for trading 24 hours a day, seven days a week. This proposal was met with stiff opposition from the oil sector and regulatory authorities.
The issue at stake was not just whether the traders wanted to trade oil futures on Saturdays. The physical oil market is priced using benchmark prices, and it was not clear if the non-stop trading could be kept grounded in reality.
The CFTC initially blocked the plan, kicking off months of debate. CME eventually shelved it.
Kalshi is taking a different route. Its market would stop for the weekend, but the contract itself would barely expire at all.
There is also history between these companies. CME executives have criticized perpetual futures, and CME sued the CFTC earlier this year over its decision allowing Kalshi to offer crypto-linked versions of the same broad derivative concept.
And oil is not the only regulatory battlefield surrounding Kalshi.
Ohio, 38 other states, and Washington, D.C. have petitioned the U.S. Supreme Court to take up another separate challenge involving Kalshi’s sports event contracts. In its October 7th filing, Ohio has supported New Jersey in Flaherty v. KalshiEX, LLC., Case No. 26-299.
The matter revolves around whether the sports event contracts qualify as swaps under the Commodity Exchange Act and, if they do, whether the application of federal commodities law preempts state gambling law.
In the Third Circuit, Kalshi prevailed and the sports event contracts were deemed swaps under federal jurisdiction. The Ninth Circuit ruled against Kalshi and held that the application of Nevada’s gaming law remained intact. The Sixth Circuit also disagreed with the proposition that federal commodities law preempted state gambling law.
Other similar challenges are still pending in the Second, Fourth, Seventh, Eighth and Tenth Circuits, as well as the Massachusetts Supreme Judicial Court.
