As the cost of carry increases, the futures price will increase further if more storage space is not created. To get out of super-contango, the supply of a commodity will need to decline until more storage space is created or current inventories are used up.
However, stopping the supply of a commodity is not an easy task. For example, it’s hard to stop the supply of oil because there are a number of key oil producing areas of the world, such as the US, Russia, China and the member countries of OPEC.
Trying to get so many different entities to coordinate production cuts can prove difficult, and usually, one party will not want to cut their production unless they can be assured that other parties will do the same.
Many investors and traders will take super-contango as an indicator that the spot price of a commodity has hit the bottom of its lower limit. Until the stockpiles are depleted and production cuts are lifted, the price is unlikely to rise.
Example of a super-contango
An example of super-contango would be after the 2008 financial crisis. During this super-contango, it became so profitable to buy spot oil and sell oil futures, that traders and investment funds were renting oil tankers as extra storage space after conventional means of storage were exhausted.
Super-contango is viable so long as the cost of storage added to the spot price remains below the supposed futures price of an underlying commodity – which is what made the above example possible.