05.07.2009
A financial statement prepared annually for shareholders and stating a company’s assets and liabilities
Opposite to contango. Backwardation prevails when the price of a distant futures contract is below that of an earlier delivery. For instance, if in September 2008 crude oil futures for sale in October settled at $97.88 a barrel and the January 2009 delivery finished up at only $97.72, this would mean that the January 2009 market was “backward” by 16 cents a barrel. Put another way, the spot market (where deliveries are made “on the spot”) is 16 cents under January. If you have oil to sell, to whom would you rather deal? To somebody who wants it by October or to someone who wants it after New Year’s Day? You’ll get 16 cents more, and avoid three months of storage costs by dealing your oil in the spot market.
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