This paper finds that during the last few days of trading in most commodity futures contracts the nearby futures price increases significantly relative to the prices for deferred contracts. The change in the price spread between nearby and first deferred futures contracts is strongly associated with the change in open interest of the nearby futures contract. We argue that the rise in nearby prices reflects a liquidation premium that buyers receive for bearing the risk of carrying long positions in nearby contracts into the final days of trading. The liquidation bias is consistent with the presence of delivery options in commodity futures markets.
