Contango

The market shape where futures stand above spot, rewarding storage and taxing long speculators.

Overview

The term, an old piece of London exchange slang, describes an upward sloping forward curve where nearby months are cheaper than deferred. When the spread exceeds storage and financing costs, cash and carry arbitrage buys spot, stores, and sells forward, which is how the oil market absorbed the gluts of 2015 16 and 2020, tanks filling until the trade closed. For index funds rolling long positions, contango bleeds value at every roll, the famous drag on oil ETFs. Deep contango signals surplus: inventories high, immediate barrels cheap, and the curve a menu of storage costs, interest rates, and expectations.