Keyword Analysis & Research: oil futures backwardation

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Frequently Asked Questions

What would happen if the oil market was in backwardation?

The oil markets would be in backwardation. Over the course of the next few months, the weather issues are resolved, and crude oil production and supplies get back to normal levels. Over time, the increased production pushes down spot prices to converge with the end of year futures contracts.

What are the benefits of backwardation in futures trading?

These investors benefit from the increase in futures prices over time as the futures price and spot price converge. Additionally, a futures market experiencing backwardation is beneficial to speculators and short-term traders who wish to gain from arbitrage.

How do you know if a futures contract is backwardated?

One way to identify futures that are experiencing backwardation is to look at the spread between near-month contracts and contracts that are further out. If a futures contract trades below the spot price , it will increase because the price must eventually converge with the spot price upon contract expiration.

What are the causes of backwardation in the commodities market?

The primary cause of backwardation in the commodities' futures market is a shortage of the commodity in the spot market. Manipulation of supply is common in the crude oil market.

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