From the course: Understanding Capital Markets

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Commodities and contango

Commodities and contango

From the course: Understanding Capital Markets

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Commodities and contango

- [Instructor] As an investor, it's important to understand a common feature in commodities futures, contango and the crucial impact it has on exchange traded products or ETPs that cover commodities. Now contango, which is sometimes called forwardation, is just a situation where the futures price of a commodity is higher than the expected spot price at maturity, and it dramatically impacts some of the products that are out there, like, for instance, the U.S. Oil Fund or USO. Many investors, when they think about trading oil, would think about trading a product like USO. Now I'm here at Nasdaq.com, and I've pulled up a chart of USO over the last year, and what we can see is the price has kind of bounced around a lot. It was as high as about $16 and it's gotten down to a little under 10. What's happened over a five-year period? Well oil prices have fallen, and USO price has fallen too. Now part of the contributing factor there,…

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