The difference between a commodity’s spot price and its futures price arises because the latter takes a range of variables into account. These include the current spot price, the time until delivery of the futures contract, interest rates on the contract and the cost of carry for the deliverable commodity.
What is contango?
Contango is the market condition in which the price of a commodity futures contract is currently trading higher than the spot price of the underlying.
Contango is the normal market condition for a futures contract. This is because the price for a futures contract accounts for the spot price plus the cost of carry, so it will often be more than just the underlying spot price – depending on the time until delivery.