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
-
Should you buy Nvidia shares? Why price could rise this monthNvidia’s share price has fallen as investors have been rattled by DeepSeek, but these concerns could be overblown, and may present a buying opportunity ahead of earnings
-
Car tax rules are changing: what are the new vehicle excise duty rates?The rules around vehicle excise duty are changing this April. What are they, and how are they going to affect you?
