Contango definition

Contango is a market condition in which the futures price of a commodity is higher than its current spot price, so contracts for later delivery cost more than those for delivery soon. The forward curve slopes upward when a market is in contango.

This pattern often reflects the costs of holding a commodity over time, such as storage, insurance, and financing, which are built into later-dated prices. For traders who roll futures forward, contango can create a cost, because they sell cheaper near-term contracts and buy more expensive later ones.

Contango is the opposite of backwardation, where near-term prices are higher than later-dated ones and the forward curve slopes downward. A market can move between the two as supply and demand conditions change.