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Topic: Backwardation

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	Jeff Vail: Energy Intelligence
		Backwardation is the reverse, where the cost of a commodity in the more distant future is less than it is in the near future.
		Backwardation, the reverse of contango, is indicative of supply shortages in today's spot market because if there is ANY spare capacity for production it would be used to take advantage of today's higher prices, resulting in those prices declining.
		And backwardation can be a self-perpetuating event for a time, so it's no surprise that it proceeds for a while before correcting back to a contango pattern.
	www.jeffvail.net /2006/03/when-will-peak-oil-tip-from.html (1892 words)

	Backwardation - Wikipedia, the free encyclopedia
		Backwardation, sometimes incorrectly referred to as "backwardization," is the situation where futures contracts closer to expiration trade at higher prices than those that are far from expiration.
		Backwardation is an abnormal situation, and is suggestive of supply insufficiencies in the corresponding (physical) spot market.
		The LME uses backwardation limits in emergency situations, such as in 2005 following Hurricane Katrina when Zinc warrants in New Orleans were suspended until the warehouses were checked, or to act against possible or suspected market manipulation, such tightness in particular prompts for Aluminium in early 1999.
	en.wikipedia.org /wiki/Backwardation (569 words)

	Weekly Commentary
		Backwardation, or inversion, is the condition in any futures market where the nearby contract months trade at a higher price than longer-dated months.
		Generally, backwardations occur in non-metal and base metal commodities when there is tightness or shortage in the near term availability of a commodity.
		Backwardation is just another way of saying that the real item will command the highest price at some point.
	www.investmentrarities.com /09-22-03.html (1243 words)

	works
		Backwardation occurs when the price of a commodity or currency for future or forward delivery is less than its price for spot or current delivery.
		And a currency is in backwardation against gold when one unit of the currency will purchase less gold for future than spot delivery.
		Accordingly, the dollar is shown in backwardation versus the mark and the yen, meaning that $1 would purchase progressively fewer marks and yen as the delivery dates lengthened into the future.
	www.goldensextant.com /goldensextant.html (6434 words)

	Kitco - Contributed Commentaries
		As the most monetary of all commodities, gold futures are rarely in backwardation because the spread between the spot price and futures represents a pure time value premium – i.e., a real interest rate reflecting the preference for present vs. future dollar holdings.
		In the short-lived rally last month that saw gold momentarily touch the $290 level, we pointed to the presence of backwardation as an indication that the move higher was likely to be short-lived.
		The fact that backwardation has not been seen in the most recent run to $300 is one indication that it is more than a technical, short-covering event.
	www.kitco.com /ind/Gitlitz/apr242002.html (1128 words)

	The Stalwart: Backwardation and Base Metals
		Traditionally, base metal forward curves are "backwardated", which is a sexy word that implies the further into time you go, the lower the price.
		Backwardation of future prices is not always an easy concept to grasp for the uninitiated.
		Backwardation occurs, however, because under normal circumstances a consumer will choose to de-stock inventories when prices are high, and re-stock when prices are low.
	www.thestalwart.com /the_stalwart/2006/01/backwardation_a.html (462 words)

	Contango Lessons
		The net result is backwardation in which the oil price rises today to offset the advantage of waiting to see the price before oil extraction.
		However, this implication is not supported by the data: the term structure of futures contracts for long term maturities is in backwardation and the volume of outstanding contracts is relatively low which indicates that investors place little weight on peak oil predictions.
		When a market is in backwardation, participants have no incentive to accumulate inventories as buyers of oil for the future will buy paper rather than buy oil at a higher price today and store it.
	www.mees.com /postedarticles/oped/v49n48-5OD01.htm (2530 words)

	backwardation
		Backwardation occurs in futures when the futures price is less than the futures price that would obtain if there were no riskless arbitrage opportunities, perfect markets, and the underlying asset is not held for comsumption purposes or used in production.
		The usual reason given for backwardation is convenience yield -- the additional value due to the underlying asset from the option to use it for consumption or in production.
		Two degrees of backwardation are typically distinguished: weak backwardation and strong backwardation.
	www.in-the-money.com /glossarynet/backward.htm (81 words)

	TCS Daily - The Destabilizing Oil Speculator
		Suppose that the government were to keep the oil in the SPR but speculate against backwardation by selling June '04 oil contracts and buying June '05 oil contracts.
		Those decisions are separable, and it is not clear that betting against backwardation is necessarily a smart move for any speculator, including the government.
		Filling the SPR during a period of backwardation, as we are doing now, serves to worsen what the market sees as a temporary price spike.
	www.tcsdaily.com /article.aspx?id=052404D (1554 words)

	Backwardation, Futures, Contango, Baisse, Price, Marke alles!
		Backwardation beschreibt eine Preissituation bei Warentermingeschäften bei der der Tagespreis (Kassa) höher ist als der Terminpreis.
		Backwardation beschreibt eine Preissituation bei Warentermingeschäften bei der der Tagespreis...
		Backwardation beschreibt eine Preissituation bei Warentermingeschäften bei der der Tagespreis (Kassa) höher ist...
	www.awbl.de /99837_Backwardation_1.html (1563 words)

	Welcome to SILVERAXIS!
		Backwardation indicates that spot demand exceeds speculative expectations for future prices and is usually associated with markets experiencing what is assumed to be temporary tightness in physical supply.
		For example, backwardation has been a consistent feature of energy markets for years thanks to the peculiarities of energy supply (mostly due to the manipulative acts of OPEC and other command economy oil exporters as well as the difficulty of above ground storage of oil and gas).
		Basis risk is the risk that prices in the futures market will not follow the spot market up or down for a variety of reasons but usually due to widespread fear of an imminent default, closure or major rule change of the futures exchange.
	www.silveraxis.com /explain_basis.html (3086 words)

	Backwardation Summary
		Backwardation, sometimes incorrectly referred to as "backwardization," is the situation where futures contracts closer to expiration trade at higher prices than those that are far from expiration.
		This is the case of a convenience yield that is greater t...
		Studies that have tested Keynes' theory over the years are practically split evenly between those supporting the theory and those opposing it.
	www.bookrags.com /Backwardation (161 words)

	The Oil Drum \| Peak Oil Contango? (Site not responding. Last check: 2007-11-04)
		Backwardation is the opposite, where the price of a futures contract gets less expensive as one goes farther into the future.
		The point still stands, however, that a backwardation reflects a tight current balance between supply and demand that is expected to ease going forward, and a contango would relfect the opposite situation.
		So it seems to me that backwardization is a signal that market particpants consider the spot market prices as out of wack with their long term expectations and that current shortages are an exceptional rather and a new order.
	www.theoildrum.com /story/2006/3/23/31547/4509 (9160 words)

	Backwardation
		The yellow metal is at a state of backwardation in India with the futures are trading below Rs 7,900 per 10 grams at the moment.
		The nearby market structure had been signaling that something was afoot even at the end of the previous week with a sharp contraction into backwardation of the...
		The cash-3s period ended the week valued at $205 backwardation, compared with $177.50 the previous Friday, and cash metal itself was valued at $4,310.
	finance.za-news.com /new/Backwardation.html (594 words)

	EconLog, Backwardation, Arnold Kling: Library of Economics and Liberty
		Another argument is that when backwardation occurs, inventories drop to near zero, because oil refiners are not stupid--they sell everything they have.
		There would be no backwardation without the mistaken understanding of market costs by both Speculators and Government.
		A certain degree of backwardation is normal (hence the phrase "normal backwardation").
	econlog.econlib.org /archives/2004/05/backwardation.html (1413 words)

	Futures-Spreads und saisonales Trading - Ross Trading bietet Bücher, Seminare, Börsenbriefe, Software ...
		Wenn ich irgendwo Backwardation entdecke, außer bei Zins-Futures (wo es normal ist, dass die Kontraktpreise in den naheliegenden Monaten höher notieren), dann bin ich sofort gewarnt, dass ein normaler saisonaler Futurestrade nicht einträglich sein könnte.
		Backwardation bei den Interest-Rate-Kontrakten (Zinsen) verhält sich entgegengesetzt zur Backwardation in den Rohstoffen.
		Backwardation stellt eine Situation dar, die uns darauf aufmerksam macht, dass die Bedingungen im entsprechenden Markt nicht normal sind.
	www.ross-trading.de /boersenbuecher/spread-trading-leseprobe.htm (2609 words)

	Backwardation
		This is known as backwardation, or an inverted market.
		This situation may occur when the costs of storing the product until eventual delivery are effectively subtracted from the price today.
		Backwardation / a market condition in which futures prices are lower in the distant delivery months than in the nearest delivery month.
	www.itlocus.com /glossary/backwardation.html (241 words)

	Futures Shock: 'Backwardation' in Oil Stocks Rewards Patience
		Over a long period of time, high levels of backwardation appear to call peaks in crude oil prices about six to nine months in advance.
		Most American oil companies today are refiners more than producers; their refining margins should be helped by both lower crude oil prices and a lower level of crude oil backwardation.
		Right now, however, the 3/2/1 refining margin, or "crack spread," produced by adding the price of two barrels of gasoline and one of heating oil and subtracting the cost of three barrels of crude oil, is very high by historical standards.
	www.thestreet.com /p/comment/futures/896937.html (918 words)

	Energy Outlook
		In backwardation, the price of the nearest or "prompt" commodity month on the exchange is higher than that of the next month, and so on.
		Generally speaking, backwardation is a sign of strong demand or weak supply (or both), while contango indicates a market that is becoming oversupplied.
		The current market, which not long ago was fully "backwardated", is actually a bit of both today: contango through this September (with a really big May/June delta), and then mild backwardation as far as the eye can see.
	energyoutlook.blogspot.com /2005/04/market-shapes-one-of-great-luxuries-of.html (568 words)

	The Hindu Business Line : Futures in backwardation
		Backwardation was seen in the Nifty futures for most of the days during the week.
		A market is considered to be in backwardation when the cash price exceeds the future price or a nearby futures price is greater than a more distant futures price.
		After witnessing backwardation for most of the days, the Nifty futures ended the trading session on Friday near the spot Nifty.
	www.blonnet.com /iw/2003/05/04/stories/2003050401101200.htm (708 words)

	works2
		This backwardation may be seen indirectly by multiplying forward gold prices on the COMEX times like maturity forward yen prices against the dollar.
		The backwardation of gold against the yen can be seen directly on the Tokyo Commodities Exchange (the "TOCOM") (www.tocom.or.jp), where at the close July 14, spot gold was Y1001/gram and June 2000 gold Y978.
		At that time the backwardation was not quite as pronounced as today because gold lease rates were lower.
	www.goldensextant.com /waragainstgold.html (4246 words)

	Consensus Financial Commentary
		A market in backwardation is the opposite of a contango, as prices tend to be lower in the forward months relative to the spot month.
		The rational for a backwardation occurring is predicated upon tightening of supplies to the extent that buyers are willing to pay a premium to get the metal they require in the short term, thereby putting upward pressure on nearby prices relative to the forward months.
		But is should also be recognized that a market in backwardation can provide opportunities for buyers to take advantage of lower forward prices to make their purchases and to the extent the backwardation remains, they will sell at the higher price when it becomes spot.
	www.consensus-inc.com /02000dos/ecar1505/fin-com/fc-jeg.htm (1121 words)

	LME pulls its reins on aluminum spread - London Metal Exchange intervention in aluminum market reduces backwardation ...
		The action came after the daily backwardation, or the premium to borrow metal for a day, had climbed to to in excess of $20 Tuesday.
		On Tuesday, the cash-to-three-month backwardation was up to $120-$140 but had eased to $70-$80 in the premarket and then was down to' $30-$40 in Wednesday afternoon trading.
		He said the tightness problem that caused the escalating backwardation was "localized," and the LME's action appeared to be having the desired effect.
	findarticles.com /p/articles/mi_m3MKT/is_n167_v105/ai_19714256 (416 words)

	backwardation and Stock Trading at TradeStars + Stock Trading (Site not responding. Last check: 2007-11-04)
		backwardation and stock trading - the top source for backwardation totally disclosed with their famous traders pack.
		Firstly that the markets are fair backwardation, simply reflecting the undeniable laws of supply and demand, and a U.S. Senate backwardation subcommittee, former SEC Chairman Arthur Levitt testified that, I am concerned that some stock traders dont fully understand the backwardation level of risk they are assuming.
		I am concerned that some people may be lured the major problems and abuses in the backwardation industry and summarizes the legal actions brought to date.
	www.tradestars.com /content/backwardation.asp (131 words)

	Backwardation - Joe Ross & Trading Educators Forums
		Backwardation exists for the April, May and June contracts.
		Backwardation does not automatically mean there is something unusual goin on.
		Backwardation, seasonality, correlation...for me it is only an additional filter and it gives me some edge.
	www.tradingeducators.com /forum/showthread.php?p=206 (869 words)

	silver backwardation - Gold & Silver Forum
		"Backwardation" is a commodity futures term for when contracts for sooner delivery are more expensive than contracts for later delivery.
		I think it is a way that they manipulate longs to give up their near-term positions in order to free up supply to cover the shorts.
		The tilt, while backward, doesn't look that radical to me, but I'm not a savvy reader of these things.
	goldismoney.info /forums/showthread.php?p=252935#post252935 (1391 words)

	Backwardation - Traderpedia
		Backwardation is an abnormal situation, and is suggestive of supply insufficiencies in the corresponding (physical) spot market.
		In Treatise on Money (1930, chapter 29), economist John Maynard Keynes argued that in commodity markets, backwardation is not an abnormal market situation, but rather arises naturally as "normal backwardation" from the fact that producers of commodities are more prone to hedge their price risk than respective consumers.
		The opposite market condition to backwardation is known as contango.
	www.trade2win.com /traderpedia/?title=Backwardation&printable=yes (243 words)

	Backwardation
		It is a state in which the price of a future is less than the spot price of the underlying commodity.
		As forwardation is the usual condition of futures, backwardation occurs when prices are moved by factors such as predictable cycles in supply and demand.
		This is why backwardation is seen in agricultural commodities but is fairly unlikely to occur in most hard commodity markets.
	moneyterms.co.uk /backwardation (74 words)

	Wilmott Forums - Another weird but real life exotic
		If the market is in backwardation then I still have to buy the Average but I will be selling the first day instead of the last.
		So if you start of with backwardation and then few days later the market is contago you can increase profits by moving the excercise day closer in time and closing out the single-forward agreement.
		In many scenarios this option is almost worthless, e (like backwardation with very negative cost of carry), and the value of the option depends on the volatility of the CC slope.
	www.wilmott.com /messageview.cfm?catid=4&threadid=3581 (803 words)

	Backwardation
		Backwardation says that as the contract approaches expiration, the futures contract will trade at a higher price compared to when the contract was further away from expiration.
		When backwardation does occur in a futures market it has been suggested that an individual in the short position would benefit the most by delivering as late as possible.
		Backwardation in futures contracts was called "normal backwardation" by economist John Maynard Keynes.
	www.investopedia.com /terms/b/backwardation.asp (372 words)

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