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What is contango in commodity markets?

April 26, 2017commodity contango Markets

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What is contango in commodity markets?

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For example, if we estimate that today’s spot price, price at which a physical commodity is trading today, is an expected spot price someday in the future, and we see an upward trend in a commodity strip (series of future contracts prices), we see a contango. On the other hand, if the futures prices in a commodity strip trending upwards are considered unbiased estimates of the expected future spot prices, meaning they are equal, there is no Contango or Backwardation to speak of. By the way, upward trend of estimates may be a result of storage expenses.