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Backwardation is a
market condition where spot prices
exceed forward prices.
Contango is the opposite condition, where
forward prices exceed spot prices. The terms are most commonly used in oil
markets but are also applied in certain commodities and energies markets. In oil markets, the prevailing
condition may reflect immediate supply and demand. If crude oil is
contango, it may indicate immediately available supply.
Backwardation can indicate an immediate shortage. Anything that threatens
the steady flow of oil around the world, such as imminent war, tends to
drive the oil market into backwardation. |
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