Thursday, November 13, 2014

When do backwardation and contango trends occur in commodity markets?

When do backwardation and contango trends occur in commodity markets?
Backwardation trends are often occurring under expectations for oversupplied markets where buyers dictate conditions. Backwardation trends are common for non-perishable commodities perceived as abundant, inexpensive, and expensive to store. Crude Oil and Natural Gas were in the past frequently viewed as such. Contango trends are often occurring under expectations for undersupplied markets where sellers dictate conditions. Contango trends are common for scarce, expensive (forgone alternative interest is a huge factor), non-perishable and expensive to store commodities like Gold.

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