If a market is in contango the futures curve slopes upward as forward prices are higher than today. It is also true that prices must fall as they converge toward the spot price at the time of maturity for a market to be in contango.
Is this not a contradiction? The curve says prices should get higher to be in contango. But for the market to be in contango prices must be falling as they converge?
For example, looking at oil futures right now. The futures price is higher for each month you want to purchase. However the sector is said to be in contango as prices are falling to converge to the ever falling spot price. Therefore, why are contract prices higher. This cannot all be down to storage costs?
Any help would be greatly appreciate my head hurts.
UPDATE - is it true then that the futures price and spot are roughly correlated and rise and fall closely together (most of the time)? Would it also be correct to view this as grabbing a contract from the futures line and then that contract over time floats up or down to finally meet the spot price at the time of expiration? The contract is given a boost (backwardation) or headwind in (contango)