OILX - Crude Oil Backwardation: Theory Facts And Myths

This article is a follow-up to one I wrote a couple of years ago, "When Do Crude Futures Flip Into Backwardation?" I updated the statistics and added a section on price implications. I have noted in my reading of articles and in readers' comments a strong belief that backwardation leads to price increases, but my analysis disputes that theory.

For non-futures traders, contango is a futures price market structure in which future prices are higher than the nearby contract. A backwardated market is one in which future prices are lower than the nearby contract.

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