Contango vs Backwardation: Futures Curves Explained

A futures market can price the same barrel of oil at $103 for December and $82 for a year later. That gap is not a mistake. It is the shape of the futures curve, and it shapes what a position earns or loses over time each time you roll it into a later month. The two names for that shape are contango and backwardation.

This guide explains both terms with real curves from 28 October 2026. On that day gold was in contango, WTI crude oil in steep backwardation and natural gas showed a seasonal curve. I have traded futures since 1980, and roll dates and curves are part of my daily routine. Contract specifications come from CME Group and definitions from the CFTC, both checked on 29 October 2026. The example prices are closes of CME-listed contracts as reported by Yahoo Finance. This article follows our editorial policy and is for education, not investment advice.

Contango and backwardation in 30 seconds

• Contango: later contract months cost more than the nearest one. The curve slopes up. Gold on 28 October 2026: December 2027 was 5.1% above December 2026.
• Backwardation: later months cost less. The curve slopes down. WTI crude oil on the same day: December 2027 was 20.2% below December 2026.
• The cause: contango usually reflects the cost of carry (financing, storage, insurance). Backwardation usually means buyers pay extra to have the goods now.
• What it means for you: a long position that rolls in contango re-enters at a higher price each time. If prices stay flat, that gap turns into a loss as the new contract converges towards spot. In backwardation the effect works in its favour. Futures-based commodity ETFs face the same effect.

What is contango?

Contango is a market situation in which futures prices for later delivery months are progressively higher than the price for the nearest delivery month.

The word describes the slope of the curve, not the direction of the price. The CFTC defines contango as prices in succeeding delivery months that are progressively higher than in the nearest month, according to its glossary. Many traders also use it when a futures price is above the spot price, the price for immediate delivery. Both views say the same thing: waiting for the goods costs more than having them now. A market in contango can still fall, and the whole curve falls with it.

What is backwardation?

Backwardation is the opposite of contango: futures prices are progressively lower in the more distant delivery months.

In backwardation the market pays a premium for the present. The nearest contract, or the spot goods, cost more than later deliveries. This usually happens when supply is tight right now: buyers who need the commodity this month bid up the near contract, while later months are not needed as urgently. The CFTC glossary lists inverted market as a related term.

Contango vs backwardation: the difference

Both terms describe the same curve with opposite slopes. The table puts the price structure, the usual cause and the effect on a roll side by side.

Feature	Contango	Backwardation
Later months vs nearest month	More expensive	Cheaper
Shape of the futures curve	Rising	Falling
Typical cause	Cost of carry, ample supply	Tight supply, strong demand now
Rolling a long position	Re-enters higher: negative roll yield if spot holds	Re-enters lower: positive roll yield if spot holds
Rolling a short position	Positive roll yield if spot holds	Negative roll yield if spot holds
Example on 28 Oct 2026	Gold, copper	WTI crude oil

A change from one state to the other often tells you more than the state itself. When a curve that was in contango flattens and turns into backwardation, buyers are paying more for prompt delivery. That points to a tighter supply situation, and it often shows up in the curve before it shows up in the news.

Spot price, futures price and convergence

A commodity has two prices: one for now and one for later. The spot price (also cash price) is the price for immediate delivery and payment. A futures contract fixes the price today for delivery on a later date. The difference between the two is the basis, which the CFTC defines as the difference between the cash price and the price of the nearest futures contract.

Near expiry, the futures price moves towards the spot price. The CFTC calls this convergence: the tendency of physical and futures prices to approach one another, usually during the delivery month. The logic is simple. On the last trading day, buying a contract for delivery now and buying the goods now are almost the same deal, and arbitrage keeps the two prices close.

Convergence is a tendency, not a guarantee. Delivery location, quality grades and storage limits can keep a gap open until the end. The most extreme example came in April 2020, covered below.

Why contango happens: the cost of carry

Contango is mostly the price of carrying a commodity until delivery. The CFTC defines the cost of carry as the cost of storing a physical commodity or holding a financial instrument over a period of time. For a metal that means financing the purchase, storage in an approved warehouse and insurance. If you buy the metal today and sell it for later delivery, the futures price has to pay for those costs, or nobody would hold the inventory.

Gold shows a clean carry curve because it does not spoil and is rarely scarce. On 28 October 2026, the December 2026 gold contract closed at $4,051.6 per troy ounce and the December 2027 contract at $4,258.7. That is about 5.1% more for delivery one year later, the market’s price for financing, storing and insuring the metal for a year. Copper looked similar: December 2027 was about 5.8% above December 2026.

Supply and season matter as well. A well-supplied market has no urgent buyers for the nearest month, so the near contracts trade at a discount to later ones. In farm markets the harvest adds a seasonal pattern: old crop and new crop can trade at very different prices. And in energy, heating demand makes winter months more expensive than spring months.

Why backwardation happens: tight supply now

Backwardation appears when the market needs the commodity today more than tomorrow. If inventories are low, a refinery or a manufacturer that needs supply this month will pay up for the nearest contract. Holders of physical stock then prefer to sell now rather than store, and the curve slopes down.

WTI crude oil was a textbook example on 28 October 2026. The December 2026 contract closed at $102.78 per barrel, January 2027 at $100.99 and December 2027 at $82.00, about 20% below the nearest month. Every one of the 13 monthly contracts was cheaper than the one before it. For the chart reading behind the oil price itself, see our crude oil price forecast.

Some curves are neither simply up nor down. Natural gas is the best example. On the same day, Henry Hub gas cost $3.032 per MMBtu for December 2026, $3.470 for January 2027, only $2.425 for April 2027 and $4.003 for December 2027. The curve rises into winter, falls in spring when heating demand ends and storage is refilled, and rises again into the next winter. Whether a gas trader is “in contango” depends on which two months are compared. Our natural gas price forecast follows the front contract.

Rolling a futures position: roll yield in both curves

Every futures contract expires, so a position you want to keep has to be rolled. You close the expiring contract and open the same position in a later month. Most traders do not want delivery of 1,000 barrels of oil or 100 ounces of gold, and brokers enforce that. Interactive Brokers, for example, may liquidate a position in an expiring physically delivered contract during its close-out period without further notice, and publishes the deadlines per contract.

1. YouCheck the datesLook up the last trading day, the first notice day and your broker's close-out deadline.
2. YouPick the next monthChoose the contract with the higher volume and open interest, not simply the next one.
3. MarketClose and reopenSell the old contract and buy the new one, or trade both legs as one calendar spread.
4. YouWatch the new entryIn contango you re-enter higher, in backwardation lower. If spot holds, convergence turns that gap into a drag or a tailwind.

First notice day is the first day on which notices of intent to deliver can be received (CFTC). Physically delivered contracts often require you to act before it.

In contango, a long position re-enters at a higher price at every roll. With the closes of 28 October 2026, a long rolling from December 2026 gold ($4,051.6) into February 2027 ($4,085.8) would buy the new contract $34.2 per ounce above the old one: a gap of $3,420 on one standard gold contract (GC, 100 troy ounces) and $342 on one Micro Gold contract (MGC, 10 troy ounces). The roll does not debit this amount. Closing the old contract books its profit or loss against your original entry, and the new contract starts at its own price. If spot stays unchanged, the February contract tends to drift down towards the spot price as delivery approaches, which shows the negative roll yield; a rising spot price can offset that drag, but it does not remove it. Fees and the bid-ask spread of both trades come on top. A short position faces the mirror image.

In backwardation, the same mechanics work for the long. A long rolling from December 2026 WTI crude oil ($102.78) into January 2027 ($100.99) would re-enter $1.79 per barrel lower, a gap of $1,790 on one CL contract of 1,000 barrels. If spot prices hold, the cheaper contract tends to drift up towards spot, a positive roll yield. This is not free money. The lower price for later delivery reflects the value the market puts on oil available now, and the curve does not tell you where spot prices will trade. If spot falls towards the later contracts, the long loses on the price what the curve seemed to offer.

The gap that matters is the one on the day you roll, not on the day you read this. Spreads move every day. Plan the roll a few days ahead, watch the spread between the two months and avoid the last hours before your broker’s deadline, when the remaining liquidity is thin. Micro contracts make the same mechanics smaller; our guide to micro futures shows how to size them from the stop. For the hours in which these contracts trade, see futures market hours.

Commodity ETFs and roll yield

A fund that holds futures has to roll them too, and in contango that costs return. FINRA explains this in its Regulatory Notice 10-51: the gain or loss from the difference between the expiring contract and the more distant contract the fund buys is the roll yield. In a market in contango, where more distant contracts are more expensive, rolling means selling low and buying high, a negative roll yield.

That is why a futures-based ETF can trail the commodity it tracks. If the spot price moves sideways for a year while the curve stays in contango, the fund re-enters at a higher price at every roll while its contracts drift down towards spot, so its value drifts lower. In backwardation the effect reverses. Before you buy a commodity ETF, read in its prospectus whether it holds the physical commodity or futures, and which months it rolls into.

For long-term investors this is the main reason to avoid holding commodity futures for years. A strategy that always holds the nearest WTI crude oil contract rolls about twelve times a year, because CME lists a contract for every month; other schedules use fewer rolls. In a lasting contango, every one of those rolls adds to the drag.

Extreme contango: oil in 2015 and April 2020

When storage fills up, contango can become very steep. From the end of 2014, rising inventories put the crude oil futures curve into steep contango, according to the EIA. Near-term deliveries were priced lower than long-term deliveries, which paid traders to buy oil, store it and sell it forward. From September 2015 to March 2016, the United States added 34 million barrels of working crude oil storage capacity, the largest expansion the EIA had recorded since it began tracking the data in 2011.

This trade is called cash-and-carry arbitrage. A trader buys the physical commodity at the spot price and sells a futures contract at the same time. If the futures price is above the spot price plus all carrying costs, the difference is locked in. In practice it needs storage, financing and delivery capacity, so it belongs to commercial firms. One CME copper contract alone is 25,000 pounds of metal.

In April 2020 the contango broke the price itself. Demand collapsed during the pandemic and storage at Cushing, Oklahoma, the delivery point for WTI, was filling up: the EIA reported 60 million barrels in storage on 17 April 2020 against a working capacity of 76 million. On 20 April, the expiring May 2020 contract fell from $17.73 to settle at minus $37.63 per barrel, according to the CFTC. The June contract closed at $20.43 the same day, according to the Congressional Research Service. Holders of the May contract who had no storage had to pay others to take their delivery obligation.

The lesson for private traders is about dates, not about oil. Know when your contract stops trading and when delivery begins, and roll or close well before. A position that is still open in the last days of an expiring contract can face prices that have little to do with the chart.

Trading the curve: calendar spreads

A calendar spread trades the gap between two months instead of the price. The CFTC defines it as the purchase of one delivery month of a futures contract and the simultaneous sale of a different delivery month. CME’s course on futures spreads calls it an intramarket spread and notes that hedgers use calendar spreads to roll positions from one month to the next.

Your result depends on whether the gap widens or narrows. On 28 October 2026, December 2026 WTI was $20.78 above December 2027, which is $20,780 per spread of one CL contract each. A trader who expects the backwardation to ease buys the far month and sells the near month, and profits if the gap narrows, whether oil rises or falls. A trader who expects tighter supply does the opposite. This is an illustration of the mechanics, not a trade idea.

Spreads can carry less risk and less margin than outright positions, but not zero risk. CME notes that spreads can be less risky than outright futures and tend to have lower margin requirements. The actual margin depends on the contracts and on your broker. A spread can still move sharply when supply changes suddenly, as the oil market showed in 2020. Trade spreads with the same position sizing rules as any other trade; our guide to risk management covers them.

Spreads between different markets follow the same idea. An intermarket spread pairs two related futures in the same month, such as gold against silver. A commodity product spread such as the soybean crush (soybeans against soybean meal and oil) mirrors a processing margin, according to CME.

How to read a futures curve yourself

You need only one list: the closing price of every contract month of one market. Put the months in order, plot the prices, and the slope tells you whether the market is in contango, backwardation or a mixed shape. Exchange product pages list the quotes for each month, and data sites such as Barchart show all contract months on one page; see our Barchart review.

Three things are worth reading from the curve before a trade. First, the slope between the month you hold and the month you would roll into: it shows whether you would re-enter higher or lower, and so whether roll yield works against you or for you. Second, changes in the shape: a contango curve that flattens or a backwardation that deepens points to a shift in supply. Third, kinks: a single month far off the line is often a seasonal effect, as in natural gas, or thin liquidity in a distant month.

Use liquid months for decisions and treat distant months with care. Prices of far contracts can rest on few trades. Compare like with like: the same type of price (settlement or close) and the same date for every month.

Contango, hedgers and the COT report

The curve shows the price of time, the COT report shows who holds the positions. Producers, merchants and processors use futures to hedge their physical business. They are the firms that can store a commodity when contango pays for it and sell forward when the curve allows it. The CFTC’s weekly Commitments of Traders report shows how these commercial traders and the speculators are positioned in each US futures market.

Reading both together gives you context, not a signal. A steep contango with large commercial short positions can reflect producers locking in later prices. A backwardation in which speculators are heavily long can mean a crowded trade. Our guide to the COT report shows how to read the groups, calculate net positions and avoid common date mistakes.

Conclusion: the curve is part of the trade

Contango is the normal state of many storable commodity markets, not an enemy. The cost of carry makes later delivery more expensive. Backwardation signals that the market wants the goods now. Both are visible in a few minutes if you look at all contract months of one market.

For your trading, three practical rules follow. First, plan your rolls and know your broker’s deadline instead of letting it close your position for you. Second, think twice before holding commodity futures or futures-based ETFs for years in a contango market, because a negative roll yield adds up. Third, once you have the experience, calendar spreads let you trade the curve itself, often with lower margin, but with real risk. I wish you every success in the markets.

Frequently asked questions about contango and backwardation

What is contango in simple terms?

Contango means that a commodity costs more for later delivery than for delivery now. The futures price is above the spot price, and later contract months are more expensive than the nearest one. The premium mainly pays for financing, storage and insurance until delivery.

What is the difference between contango and backwardation?

In contango the futures curve rises, in backwardation it falls. Contango usually reflects the cost of carry in a well-supplied market. Backwardation usually signals tight supply or strong demand right now. A switch from one to the other often points to a change in the supply situation.

Is contango bullish or bearish?

Neither: contango describes the curve, not the direction. A market in contango can rise or fall, and the whole curve moves with it. What contango tells you is that holders are paid for storage and that a long position faces a negative roll yield. A switch into backwardation is often read as a sign of tighter supply.

Is contango good or bad for traders?

It depends on your side of the trade. A long position that rolls in contango re-enters at a higher price each time, which turns into a loss if prices stay flat; a short position benefits in the same case. Spread traders trade the gap itself. Contango is mainly bad for long-term buy-and-hold positions in futures or futures-based ETFs.

Why do commodity ETFs lose money in contango?

Futures-based ETFs must roll their contracts before expiry. They sell the expiring contract and buy a more expensive later one, which tends to lose value towards spot if prices hold. FINRA calls the result a negative roll yield. Repeated every month or quarter, this drag can make the fund trail the spot price, even when the commodity moves sideways.

When should I roll a futures contract?

Roll before your broker’s close-out deadline, and usually when volume moves to the next month. For physically delivered contracts, that deadline can fall before the first notice day. Check the contract specifications and your broker’s table, and roll into a month with high volume and open interest.

What are first notice day and last trading day?

First notice day is the first day on which notices of intent to deliver can be received, according to the CFTC. If you are still long after it, you can be assigned delivery. The last trading day is the final day the contract trades on the exchange; the exact rule is in each contract’s specifications at CME.