wizofoz

Oil price is $100, and i can borrow at 5% (risk free rate)

Future price theoretically would be 105. Lets say the futures price is actually $110. I could now sell futures (i.e. sign a contract to deliver oil in one year and receive $110 in cash). Borrow 100 dollars now and use the proceeds to buy oil. Pay interest of 5% on the loan.

At the maturation of the loan, i must pay $105 ($100 loan + 5% interest). I receive $110 on the futures contract. I made a risk-free profit of $5 by selling the futures and buying the asset.

Sell overpriced, buy underpriced...