backwardation

Definition

A commodity market condition where near-term futures prices exceed longer-dated ones, suggesting immediate scarcity. The market's way of saying 'we need this stuff NOW,' convenience premium included.

Example Usage

Oil markets went into steep backwardation when supply disruptions made prompt barrels worth $10 more than delivery six months out.

Origin

Commodity trading terminology, potentially derived from 'backward' pricing structure compared to normal 'contango.'

Fun Fact

Backwardation can signal supply squeezes but also creates 'roll yield' profits for long futures holders as contracts converge upward to spot prices.

Source: Commodity futures markets

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