01Two words for two shapes
A commodity does not have one price: it has one for each delivery date. Put those in order and you get the futures curve, and it can slope two ways.
- Contango: each contract further out costs more than the nearer one. Spot 91, three months 94, six months 96. Normal when there is plenty of supply, because someone has to be paid to store it.
- Backwardation: the opposite. Spot 91, three months 88. The market is paying a premium for oil today, which is what happens when it is scarce right now.
02Why it costs you money without you noticing
This is where the curve stops being theory. A commodity ETF does not own barrels sitting in a tank: it holds futures contracts, and it has to roll them forward before they expire: sell the expiring one, buy the next.
In contango, that roll is done at a loss every time: you sell the cheap contract and buy the expensive one. Over a year of steep contango the drag can run to double digits. The result is an ETF that loses value while the commodity it tracks goes up, and the holder never sees where it went, because nothing appears as a fee.
The arithmetic, with round numbers: rolling monthly with the next contract 2% more expensive costs about 2% a month, which compounds to roughly 26.8% over a year if the gap stays that wide. That assumes a constant spread, which never quite holds, but the order of magnitude is the point.
03Why almost nobody shows you the curve
Because the chain of contracts is genuinely hard to assemble. Each commodity has its own delivery months and its own contract sizes, and the data feeds that carry them are expensive and inconsistent.
When we built this, the raw chain came back empty for 20 of 33 commodities: the symbols exist, the provider knows them, and there is no chain behind them. The honest options are to show nothing, or to generate the maturities by convention (each commodity has a published delivery calendar) and label them as generated rather than observed.
The one thing that is not acceptable is showing a generated curve as if it had come off an exchange. If you are looking at a futures curve anywhere, it is worth asking which of the two it is.
04How to read it without overreaching
- Shape first, level second. Whether spot is above or below the next contract says more about today's market than the headline number.
- Steepness matters as much as direction. A 0.2% contango and a 3% contango are both contango and mean very different things for anyone holding an ETF.
- It is not a forecast. The curve is not the market predicting the price in six months; it is the cost of carry plus scarcity today. Curves in contango have been followed by falling prices plenty of times.
- Check whether it is observed or generated before you conclude anything from it.
Frequently asked questions
What is contango?
Contango is when each futures contract further out costs more than the nearer one: spot at 91, three months at 94, six months at 96. It is the normal shape when supply is plentiful, because holding a physical commodity costs money in storage, insurance and financing, and whoever carries it has to be compensated. The opposite shape, where nearer contracts cost more, is backwardation and usually signals scarcity today.
Why does a commodity ETF lose money in contango?
Because it holds futures, not barrels, and has to roll each contract before expiry: selling the cheap expiring one and buying the more expensive next one. In contango that roll loses money every single time. Rolling monthly with the next contract 2% more expensive costs roughly 2% a month, which compounds to about 26.8% over a year if the gap holds. The fund can fall while the commodity itself rises, and none of it shows up as a fee.
What is the difference between contango and backwardation?
They are the two possible slopes of the futures curve. In contango, later delivery costs more than earlier delivery, which is typical when there is ample supply and storage has to be paid for. In backwardation, earlier delivery costs more, which is what happens when the commodity is scarce right now and buyers will pay a premium to have it today rather than in three months.
Does the futures curve predict the price?
No. It is not the market's forecast of where the price will be in six months; it reflects the cost of carrying the commodity plus how scarce it is today. Curves in contango have been followed by falling prices many times, and curves in backwardation by rising ones. Treating the curve as a forecast is the most common way of misreading it.
Measured in September 2026 over 33 commodity symbols, of which 20 returned no contract chain from the provider. Curves generated by delivery convention are labelled as such in the product and are never presented as observed exchange data.
This is information and analysis, not financial advice, and it contains no recommendation to buy or sell. See the disclaimer.
