Contango

Just thought I’d do you all a favor and help expand your vocabulary. The word of the day, according to Addison Armstrong, director of market research for Tradition Energy in Stamford, Connecticut, is “contango.”

And this is what the brains behind its Wikipedia entry say it is: “A term used in the futures market to describe an upward sloping forward curve (as in the normal yield curve). Such a forward curve is said to be ‘in contango’ (or sometimes ‘contangoed’).” A market in contango encourages companies to increase stockpiles.

Apparently, oil futures were in contango today because price for January delivery was $33.17 a barrel while the price for February delivery was $42.36 a barrel. If you have room to store a bunch of excess oil, you could make easy money by buying for January delivery and then re-selling it later at the higher February price point. But I guess the problem is that, due to decreased consumption, people are running out of places to store the stuff.

All this is meaningless to you and me. So, I’ll leave you with the word for the opposite of contango, which is “backwardation,” and now I’ll stop.

Joel Maust

Joel Maust is a blogger, marketer and photographer living in the beautiful Flathead Valley of northwest Montana.

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