, in which a futures contract trades below the commodity's expected spot price at the contract's maturity, is an indicator of a tight market.
In short, Opec has achieved its goal of pushing the global oil market into backwardation
, a shift that will likely discourage new investment.
The Brent crude futures structure has flipped into backwardation
for the first time in two-and-a-half years, mimicking the shift in the US crude futures market last week.
When investing in an oil or gas ETF, contango and backwardation
are two of the most important terms to understand.
is a performance tailwind, if it is present, the fund that concentrates its assets in the following month's contract should outperform the fund that spreads its assets out.
is a market condition in which futures prices is lower than the spot price for a certain commodity.
The buying "increased backwardation
and the prompt market is heating up," said Ehsan Ul Haq, a senior analyst at KBC Energy in Walton-on-Thames, England.
The spread between April and May Brent widened in backwardation
to 97 cents a barrel at Friday's Asia close to reflect a tighter prompt market.
The Dubai swaps backwardation
, a market situation where the cost of prompt shipments is greater than that for later supplies, narrowed today.
He added that the backwardation
in Brent - where prompt prices are higher than those further along the futures curve - was coming in, which suggested demand for Brent had slipped.
The reverse occurs when the spot price exceeds the futures price and the market is in backwardation
A sampling of terms defined includes: active premium, aggregation, angel financing, asset allocation, backwardation
, benchmark, bridge loan, capital structure arbitrage, coefficient of determination, commodity option, convertible arbitrage, deferred futures, discretionary trading, distressed debt, enumerated agricultural commodities, extrinsic value, follow-on funding, hedge ratio, interdelivery spread, long short equity, modified value-at-risk, offshore fund, piggyback registration, social entrepreneurship, systematic trading, tracking error, underlying futures contract, venture capital method, and weather premium.