Contango is a forward curve where later months are priced above earlier ones. The market is paying less for a barrel now than for the same barrel later, which is the signature of a market that is not short of prompt supply.
The mechanism has a hard ceiling, and that is the useful part. If the gap between two months exceeds the cost of storing a barrel across that interval, anyone with a tank can buy the prompt month, sell the deferred month, store the barrel, deliver it, and collect the difference with no price risk. That trade is not a forecast and does not require a view. So the spread cannot stay far above full carry, because carrying capacity gets sold into it until it does not.
So the depth of contango is a live read on how tight storage is. Mild contango means storage is available and cheap. Contango that approaches full carry means the cheap storage has been taken. Contango that exceeds full carry means the market has run out of conventional storage and is bidding for expensive alternatives, which in practice means barrels on ships. The extreme case is a curve so steep that vessels are chartered purely to sit still.
For anyone holding a long position rather than a barrel, contango is a cost. Maintaining exposure means repeatedly selling the cheaper expiring month and buying the dearer next one, which bleeds value every roll regardless of what the flat price does. That is roll yield, and it is why a long-only index can lose money in a market whose spot price is unchanged.