@RonanC. It's when you roll into a new futures contract that costs more than the one your in. For example; if the October futures contract is bought by you at $32.59, and at that exact time you roll/move/buy into the November futures contract the new November contract is priced at $32.89, the market is said to be in Contango.
If you bought the October contract at $30.22, then at the time of roll into November you book/take a $2.37 profit on holding the October contract, but then need to subtract a $0.30 loss on buying into the new contract before having a net $2.31 hold overall on the period you held the October futures contract.
in a rising futures market the market is often in Contango due largely to costs such as storage, transport, and insurance, but also due partly to future use predictions.
Were Contango really hurts is in a declining market. Using the same example above; let's say you actually bought your October futures contract for $42.61. The price has fallen dramatically this month the $10, but next month price is $25. roll would realise a loss of $32.61, which you then add a Contango loss of $15, for a net loss of $47.62. as you only had $42.61 to begin with, your actually not only wiped out completely but would owe and additional $5.01 to complete the roll.
The reason OOO pushed out there contract a couple of months back in April was due to the risk that the combination of the dramatic falls in Oil Prices and Contango could wipe out the entire fund in one month.
If you invest in OOO there is a serious risk in periods of high and unpredictable volatility that your investment could be wiped out entirely, but you would not be required to 'top end' in an event such as that outlined above so you are 'protected' in one sense beyond what a direct futures trader may have to deal with.
