Contango and backwardation
Contango: later-dated futures are priced above nearby ones. Backwardation: later-dated futures are priced below nearby ones.
The shape of a futures curve reflects storage costs, interest rates and expected tightness. In contango, the curve rises with delivery date, which is typical when supply is ample and storage is available. In backwardation, buyers pay a premium for prompt delivery, which signals tight nearby supply.
Traders care because the curve shape determines the return from holding a futures-based position. A fund that rolls expiring contracts can gain from backwardation and lose from contango, even if the spot price is unchanged. Check the roll schedule of any commodity fund before comparing it with spot.
Worked example (illustrative numbers, not real data): the nearby contract trades at 80 dollars and the next month at 81. That is contango of 1 dollar, or about 1.25 percent. A roll from 80 to 78 in backwardation would earn about 2.5 percent if the spot price stayed flat.