Skip to content
GetProfitable
Search
Dictionary

Backwardation

A futures curve where later contract months are priced lower than nearer ones, usually signaling tight current supply.

Contango and backwardationTwo futures curves against contract expiry: one rising above spot, one falling below it.The same commodity, priced for delivery at different dates.78.0076.0074.0072.0070.00Futures pricespot+1m+2m+3m+4m+5m+6mMonths until the contract expiresspot price74.00CONTANGOlater contracts cost more than spotBACKWARDATIONlater contracts cost less than spot
Contango and backwardation. A futures curve shows what buyers will pay for delivery in one month, two months and so on. When later contracts cost more than the spot price the curve is in contango; when they cost less it is in backwardation.

Backwardation means the market wants the commodity now more than later. It benefits long holders who roll (they sell high and buy lower) and hurts short holders.

It appears in oil during supply shocks and in agricultural products before harvest. It is the opposite of contango.

Example: front-month crude at $90, next month at $87, six months out at $80. The curve is in backwardation; a long roll each month picks up a few percent if the shape persists.

Related: contango, roll, front-month, cl

Educational only, not advice. Spotted an error? Post in Site Feedback.