Backwardation
A futures price structure in which the nearest delivery month trades above later months, so the curve slopes downward.
How it works
A commodity's futures contracts trade for different delivery months. Lined up side by side, their prices form the futures curve. When the nearby month is dearer than later months, the curve slopes down; this is backwardation. The opposite case, with later months dearer, is called contango.
Backwardation usually signals that supply is tight today. When inventories are low or supply is suddenly cut, buyers pay more to take delivery now. Later months price in the expectation that the shortage will ease over time.
The measurement trap is the contract roll. When the front-month contract expires, data providers switch to the next month. On a steep curve, that switch looks like a sudden drop in the indicator even though prices have not moved. A price series should therefore state clearly which contract it tracks.
Why it matters here
The shape of the curve is the best guide to whether a geopolitical disruption is being treated as temporary or lasting. Steep backwardation says the market is crowding the shortage into the present and expects it to ease. If the curve flattens while later months also rise, the disruption is being priced as lasting. We read the gap between Brent futures and spot the same way.