Futures Curve and Contango/Backwardation
The futures curve plots price against maturity. Its shape carries information about carrying costs and scarcity, and it determines the return on any position held over time.
The two shapes
Contango: later contracts more expensive. The normal state for a well-supplied storable commodity, where financing and storage dominate.
Backwardation: later contracts cheaper. Signals near-term scarcity, where the convenience yield of holding the physical good exceeds the cost of storing it.
A useful mental test: contango means the market will pay you to defer delivery, so nobody urgently needs the commodity now. Backwardation means people are paying a premium for it immediately, which happens when inventories are tight.
The carry slider is the whole story: above zero the curve slopes up and each roll costs you, below zero it slopes down and each roll pays. Nothing about anyone's forecast enters.
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