Wasn't the original purpose of futures to let farmers and others lock in prices early so they can mitigate risk? Speculation on futures seems dumb if you have no intention of taking delivery.
The distinction you’re looking for here is those who are speculating on market prices, vs. those who are hedging against market prices. If you use or sell oil in large amounts, it makes sense to use futures to stabilize your downside risk, even if those futures are cash settled.
That being said, I think that cash settled futures make purely speculative trading much easier, so you’d have a good point if that’s what you were heading towards.
Speculators in theory also provide liquidity, and in theory also contribute to keeping the prices "correct" (meaning at levels that reflect what's known). But it's not like any given speculator personally cares about that; they're just looking to gamble and win. Last I heard there was reasonable evidence that more gets spent on speculation than is delivered in benefits to the economy. So you suspicion is not unwarranted.
But there's another class of people who neither create nor consume the product, but have some financial interest in something related. E.g., suppose you sell farm equipment. You know that if wheat farmers have a bad year, you'll have a bad year, because they will put off buying your new tractors. To even things out, you can use wheat derivatives to essentially buy insurance on wheat prices. If wheat prices are normal, you lose a little money. But if they fall through the floor, you make money, hopefully counterbalancing the income from lost sales.
When this activity is significant enough, it can lead to the creation of synthetic commodities. E.g., if you are in the snowplowing business, maybe you want to insure against winters being abnormally snowy. You could maybe do something with a fuel oil future. But that's kinda tenuous. Instead now you can just trade weather futures: https://www.cmegroup.com/trading/weather/
After 2008, banks were banned from speculating (ish) [1], but were allowed to do market-making. It's common for market-making desks to do speculative trades under cover of market-making activity. It's hard to conclusively prove that any given trade is speculation rather than market-making (which involves hedging), so they generally get away with it.
E.g. a bread manufacturer wants stability on their cost of goods, so they may buy wheat futures even though they don't ever want to receive direct shipment of wheat, they're dealing with specific regional flour suppliers but the wheat futures at a major location are a good proxy for that price.
People that want to buy or sell a commodity typically only want to do a certain number of transactions. What happens if they can’t find someone to take the other side of a trade? It would be annoying to have to wait a week until someone else is interested. Moreover, they may want a different quantity than you do, or they may want a different delivery date.
There is also price discovery as you allude to. A farmer selling pork doesn’t necessarily want to have to track the details of the Chinese economy and the weather patterns in Europe just to get a fair price for their goods. Speculators help with that.
Modulo the fact that almost no one a naive observer might accuse of "speculating" is actually speculating, I do agree that speculating on commodities futures is dumb, because taking a directional bet on anything you don't have inside information into is dumb.
What? How is it any more dumb than speculating and buying a stock hoping it will go up?
Speculation in futures is what gives those farmers liquidity in the markets.
Futures is a zero-sum game.. so in my world futures make way more sense to trade than everything throwing money into stocks to magically make money out of thin air until they don't.
Seriously, do people enter into contracts like this in other parts of their life?
As for trading exactly the item you will need delivery on, that may be hard to find. Standardising on a contract that's "close enough" allows crude oil producers to trade with airlines, bus companies to trade with refineries, etc, even if they all care about different products.
That said, it varies by regional availability. For instance, Canada has fewer options: https://www.producer.com/2017/11/hedging-with-u-s-futures-an... To properly hedge a Canadian producer using a US future you’d need to also hedge against the Canadian dollar, presumably. And hope that the weather and such is similar enough.