Yes, there are physically settled and cash settled futures. The futures price converges to the settlement price (tied to spot) as the expiration date approaches.

Futures are marked to market every day and gains and losses are paid out daily in cash. So in the example you gave, you would have received $500K profit between when you bought the futures at $1M and when they expire at $1.5M. For cash settled futures that's the end of the story - a final small adjustment happens, in cash, your position disappears, and that's it.

For physically settled futures, the story is the same, but on the day of delivery, you (as the buyer) would be required to pay $1.5M cash to receive the oil, and whoever held the other side of the contract (as the seller) would be required to deliver it to you at some named location, typically a storage facility.

Who loses the $500K? The seller (who was short the contract) has been paying the losses daily as the price moved against them. The payments are handled through the exchange/clearinghouse and their brokerage.

What if they can't deliver? The exchange steps in and provides guarantees.