Backwardation is a term used in commodities markets to describe a situation where the future price of a commodity is lower than the current spot price.
This inverse relationship between future and spot prices can occur due to factors like supply shortages, heightened demand, or market expectations.
Traders may anticipate a future decline in the commodity’s availability, leading to higher spot prices.
Backwardation contrasts with contango, where future prices exceed the spot price. Both conditions impact trading strategies and can provide insights into market dynamics.