Business, Legal & Accounting Glossary

Definition: Backwardation


Quick Summary of Backwardation

Backwardation is a market condition where spot prices exceed forward prices. Contango is the opposite condition, where forward prices exceed spot prices. The terms are most commonly used in oil markets but are also applied in certain commodities and energies markets. In oil markets, the prevailing condition may reflect immediate supply and demand. If crude oil is contango, it may indicate immediately available supply. Backwardation can indicate an immediate shortage. Anything that threatens the steady flow of oil around the world, such as imminent war, tends to drive the oil market into backwardation.

What is the dictionary definition of Backwardation?

Dictionary Definition

Backwardation refers to a situation in which the price of futures contracts gets lower as the delivery date gets further in the future.

So a contract with a delivery date four months from now would be cheaper than one with a delivery date two months from now. The opposite situation is called contango.

Full Definition of Backwardation

Backwardation refers to a situation that can arise in the futures market.

It refers to a situation when the price of a futures contract is lower than its spot price. It can also refer to a price that is farther in the future being less than a price that is nearer in the future.

If there was a curve showing the value of a contract over time, in the case of backwardation it would be sloping downwards. In theory, this would suggest that prices are expected to decline over the life of the contract(s).

Contango refers to the opposite situation when a future price is higher than the spot price.

Common Usage

Traders will say that the forward curve is ‘in backwardation’, or sometimes that it is ‘backwardated’.

The term ‘backwardization’ or ‘backwardisation’ is sometimes used, but it is generally considered to be incorrect.

Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
Backwardation. Payroll & Accounting Heaven Ltd.
May 28, 2023
Chicago Manual of Style (CMS):
Backwardation. Payroll & Accounting Heaven Ltd. (accessed: May 28, 2023).
American Psychological Association (APA):
Backwardation. Retrieved May 28, 2023
, from website:

Definition Sources

Definitions for Backwardation are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 4th August, 2021 | 0 Views.