Brad Zigler

The Three C's of Commodity ETF Returns

Contango is NOT linear, but varies, especially with the petroleum complex, on supply. Contango, in its strictest sense, is actually the spread between deliveries in EXCESS of full carry. There was, earlier this year, an active carry trade in crude oil reflecting the depressed price of spot oil. As inventory was worked off, contango shrank. There's now no carry trade obtainable, though there's still a back month premium.


On Sep 29 12:56 PM searcher wrote:

> "Contango reflects the carrying charges, or the costs of financing,
> insuring and storing a cargo until the delivery date specified by
> a futures contract." True enough, but these factors would obtain
> for any commodity and would be reasonably linear as a function of
> the forward terms. Expectations for future demand and of current
> liquidity are more at play for some commodities than others. These
> factors are not linear.