Contango

Contango is a market condition in the futures market where the price of a commodity's futures contract is higher than the expected spot price of the commodity at the contract's maturity. This situation occurs when the cost of carrying the commodity (such as storage, insurance, and interest) outweighs the current supply-demand conditions. In a contango market, futures prices typically decline as the delivery date approaches, converging with the spot price.

Example

In a contango market, the price of a futures contract for oil with a delivery date six months in the future may be higher than the current spot price of oil, reflecting the costs of storage and transportation.