Contango

RECENT NEWS
Forbes  Dec 16  Comment 
Fears that full oil storage tanks will result in a price crash to $20 should not be ignored. The contango in the market is a good indicator.
Reuters  Aug 20  Comment 
U.S. crude imports topped 8 million barrels per day (bpd) last week for only the second time this year, spurring an unexpected rise in stockpiles and sending U.S. oil prices down to a fresh post-crisis low.




 

This article refers to a futures concept. For the oil & gas company, see Contango Oil & Gas Company (MCF).

Contango means the price of a commodity for delivery at a future date is significantly higher than the current or "spot" price, which makes it profitable for companies to store the commodity and enter into contracts to sell futures contracts on the commodity, even after accounting for storage costs and opportunity cost of capital (i.e. money tied down on the inventory not earning a return).

The situation persists untill the futures prices come down or current prices go up or the cost of storage becomes very high.

This situation is also referred to as an upward sloping forward curve.

The opposing market condition to contango is backwardation.

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