Contango
A futures-curve structure where longer-dated contracts trade above the spot price — typical of well-supplied physical markets.
Definition
In contango, each successive futures contract is more expensive than the prior one. This shape compensates storage and financing costs and signals that the market doesn't need supply urgently.
ETFs that roll futures (like USO for oil) suffer 'negative roll yield' in contango — they sell cheap front-month and buy expensive back-month each period.
Public research record
Research framework · page evidenceCompleted application: Contango
Contango destroys returns for naive long-commodity ETF holders. It also signals weak physical demand, which has implications for the broader cycle.
| Type | Claim | Scope |
|---|---|---|
| Release fact | A futures-curve structure where longer-dated contracts trade above the spot price — typical of well-supplied physical markets. | Commodities |
| Release fact | April 2020 oil: WTI front-month settled at −$37 while back-months stayed positive — a super-contango. USO ETF lost ~70% over the following year despite oil prices recovering, due to roll losses. | Published example |
Countercase, invalidators, and sources
The relationship is conditional: another driver can dominate the same asset over the selected horizon.
- · The underlying observation changes materially.
- · The selected asset has no measurable exposure to this mechanism.
Why it matters
Contango destroys returns for naive long-commodity ETF holders. It also signals weak physical demand, which has implications for the broader cycle.
Worked example
April 2020 oil: WTI front-month settled at −$37 while back-months stayed positive — a super-contango. USO ETF lost ~70% over the following year despite oil prices recovering, due to roll losses.