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'?

Recommended

How to invest in copper, the most important metal in the world
Industrial metals

How to invest in copper, the most important metal in the world

As the world looks to electrify and try to move away from fossil fuels, copper looks set to be the biggest beneficiary. But how can you invest? Rupert…
30 Jun 2022
Metals prices wobble on slowdown fears
Industrial metals

Metals prices wobble on slowdown fears

The S&P GSCI index of 24 major raw materials has fallen back 9% since mid-June on growing fears of a recession, and copper has hit a 16-month low aft…
30 Jun 2022
Market crash: have we hit bottom or is there worse to come?
Stockmarkets

Market crash: have we hit bottom or is there worse to come?

For a little while, markets looked like they were about to embark on a full-on crash. And that could still happen, says Dominic Frisby. Today, he look…
27 Jun 2022
How to invest in lumber, whichever way the market goes
Commodities

How to invest in lumber, whichever way the market goes

Wood plays a key role in US housing. Slow growth has hurt prices – but not for long, says David J. Stevenson.
23 Jun 2022

Most Popular

UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
22 Jun 2022
Gold has been incredibly boring to own – but that’s no bad thing right now
Gold

Gold has been incredibly boring to own – but that’s no bad thing right now

Stocks, bonds and cryptocurrencies have all seen big falls this year. But gold remains at its one-year average. It may be dull, but it’s doing what it…
29 Jun 2022