Sharky:

Contango is the term used in commodities trading to indicate that a commodity is priced higher in future periods of time. Oil is a good example of this. If one wishes to buy a contract for oil for December delivery, the price is approximately $70.00 per barrel. This is versus a current spot price for January 09 of approximately $35.00 for January delivery for West Texas Intermediate crude. The reverse is called "backwardation", when the price for near months is higher than for future months.

Therefore, the market is extracting a high premium for oil for future delivery at year end. Thus the market is saying oil will be higher. The significant element is, that the present premium for future delivery is at a very high spread.

This is why tanker companies are idling their ships and becoming warehouses for delivery of oil at year end. They can buy it on the spot at $35.00, idle their ships, sell it in the futures market for $70.00 rather than the current spot price of roughly $35.00. Therefore, the market is saying that oil will go up by year end 09 with near zero operational costs for the crude carrier. This differential is very high compared to normal times when there is maybe a $1.00 per month cotango.

This should also put upward pressure on oil prices as idled crude carriers loaded with oil, takes available spot delivery oil off of the market.

Hope I have clearly defined the situation.

Brian