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Contango

A pricing structure in securities, foreign currencies and commodities trading wherein the prices of far future deliveries exceed those of near future deliveries (i.e., the front month trades higher than the current month or the price of the front month is higher than the spot market). In other words, contango occurs when demand for later delivery is higher than demand for early/ near delivery.

For futures, contango describes the situation where spot prices are lower than futures prices, and near futures are lower priced than distant futures.

Contango (opposite of backwardation) is also known as a forwardation.

The following table provides an example about a hypothetical case where crude oil is in contango:

Month Settlement price
June 2020 60.05
July 2020 61.30
August 2020 61.80
September 2020 62.35
October 2020 62.60
November 2020 62.80

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