Backwardation
If the current cash price for an asset slips above the price for forward delivery, that's known as 'backwardation'.
If you ask for a price for forward delivery of a commodity as a buyer, it is usually higher than today's 'cash' price. That's because any seller, who has to look after the asset prior to the agreed delivery date, has to cover insurance, storage and finance costs (their money could be earning interest in the bank instead). When a forward, or future, price is above today's market price for the same asset, the situation is described as 'contango'.
However, it is possible for the cash price for an asset to slip above the price for forward delivery that's known as 'backwardation'. The reasons can vary perhaps there is a sudden short-term supply squeeze so the market puts a premium on assets available now. Typically, backwardations don't last long before a contango relationship is restored.
See Tim Bennett's video tutorial: What are 'contango' and 'backwardation'?
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
-
New Ofgem energy price cap shows prices will fall 7% in July
Gas and electricity bills are set to fall from 1 July by 7% under the latest energy price cap. We have all the details on what you will pay and whether prices are expected to fall further
-
MoneyWeek Readers' Choice Awards Winners – 2025
The MoneyWeek Readers' Choice Awards 2025 celebrate the products and services that help you make, keep and spend your money. Here are this year's winners.