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Glite Dictionary
backwardation

backwardation

1 9.9
Market condition when the price for later delivery is lower than the expected price at that time
  • noun
  • /ˌbæk.wɚˈdeɪ.ʃən/
  • Specialized
: retroceso
  • We can imagine the heating oil backwardation (future month prices lower than current) to become even more extreme than it already is, and we can imagine gasoline going backwardated out into the spring of next year rather easily.
  • weak backwardation

Examples

  • "At the same time, we see geopolitical issues and events which keep a constant threat on the ability of our industry to supply the markets in a smooth way," Guiziou said, adding that this was evident in the backwardation that has been a feature of the oil market for some time.

    Blog text (10)

  • For an extractive resource commodity like crude oil, we would expect the futures market to exhibit weak or strong backwardation most of the time, and this is indeed the case.

    Academic text (2001)

  • And we have, so we we have backwardation, but it's not a whole lot of backwardation.

  • This is the scenario described in the article "A Colder-Than-Normal Winter Could Throw Natural Gas Into Backwardation."

    Blog text (11)

  • If spot price volatility is high, the option to extract and sell the commodity becomes even more valuable, so that production is likely to require strong backwardation in the futures market.

    Academic text (2001)

  • The reason why there is a curve—either backwardation or contango—in futures is because of the cost of carry versus the cost of finance.

    Blog text (6)

  • In periods of supply shortages, the market often experiences backwardation, where futures prices are lower than expected spot prices.

  • Market analysts noted that the backwardation observed in crude oil futures indicated rising demand amidst tight supply conditions.

  • Investors should be cautious of backwardation, as it reflects a situation where the future price of a commodity is less than its current spot price.

Surface Forms

backwardation singular
backwardations plural

Morphology

backwardation = backward (opaque) = backward + ation

Although formed by nominalizing 'backward' with '-ation', the noun is a technical financial term whose specific market meaning cannot be derived from the adjective alone.

Etymology

The word backwardation comes from the common word backward meaning 'toward the back' and the ending -ation that makes a noun. So, backwardation describes a market that looks 'backwards' because current prices are higher than future prices, reversing the usual order.