backwardation

[bak-wer-dey-shuhn]

noun

1. (on the London stock exchange) the fee paid by a seller of securities to the buyer for the privilege of deferring delivery of purchased securities.

backwardation

/ ˌbækwəˈdeɪʃən /

noun

1. the difference between the spot price for a commodity, including rent and interest, and the forward price

2. (formerly, on the Stock Exchange) postponement of delivery by a seller of securities until the next settlement period

Word History and Origins

Origin of backwardation¹

First recorded in 1840–50; backward + -ation

Example Sentences

Further evidence of the short squeeze is the backwardation in the silver market, whereby spot prices are higher than those of futures contracts.

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The market structure called backwardation occurs when spot prices are higher than future prices, giving energy firms little incentive to pay to store fuel for future months.

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On Wednesday, WTI backwardation soared 48% to $2.38 a barrel, the highest since the end of July 2022, after government data showed stocks at the Cushing, Oklahoma, storage hub and delivery point for U.S. crude futures, extended their drawdown, also to the lowest since July 2022.

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"Cushing storage has shrunk to a historically low level, leading to a further increase in backwardation in the WTI curve," analysts at Barclays, a bank, said in a note.

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This structure, called backwardation, indicates tightening supply for prompt deliveries.

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