Contango is a market condition in futures markets where the price of a near-term contract is lower than prices for longer-dated contracts, reflecting the cost of carry — storage, financing, and insurance — plus other market factors. In commodities such as oil, metals, or agricultural goods, the term describes how the futures curve moves from near to longer maturities. When futures prices sit above the spot price, the curve tends to slope upward, and traders refer to contango.
The shape of the futures curve affects hedging and investment outcomes. For positions that are rolled from one contract month to the next, contango can lead to higher roll costs because each roll buys a more expensive contract than the one being sold. This dynamic is tied to the carry effect and can influence the performance of commodity-linked strategies, especially those that aim to maintain exposure over time.
Contango is often contrasted with backwardation, and is linked to concepts such as the cost of carry, the spot price, and the overall futures curve.
In crude oil markets, if the spot price is $70 per barrel and the next-month futures price is $75, with further months higher, the market is described as contango.
Backwardation · Futures curve · Cost of carry · Roll yield · Spot price · Futures contract