Cotton, Crude, and Gasoline Face Falling Prices

By Commodity HQ  MAY 28, 2013 11:35 AM

Backwardation, when near-month futures are more expensive than those expiring later, creates a downward sloping curve from prices over time and can suggest a coming drop in value. Cotton, crude, and gasoline are all in backwardation.

 


Backwardation is the process where near-month futures are more expensive than those expiring later in time, which creates a downward sloping curve for prices over time. It is a natural occurrence in the commodity world, but it’s still a phenomenon that traders need to be aware of. Often, a falling futures curve could mean that the market expects the commodity to take a drop in value or that it is currently overpriced.

As such, being cognizant of futures patterns can be a big help to traders everywhere. Below, we outline three commodities currently exhibiting a stretch of backwardation:
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Editor's note: This article by Jared Cummans was originally published on Commodity HQ.
No positions in stocks mentioned.