Fundamental Analysis: Contango and Backwardation - Course Commodity Spread Trading

Описание: In this video we will start to understand two very important concepts in the world of raw materials: contango and backwardation.

You should know that futures with different maturities have, in most cases, different prices. And in commodities typically the prices of the nearest maturities are lower than those of the more distant maturities. This normal situation is called contango and occurs because there are storage and maintenance costs.

As manufacturers have higher costs for maintaining longer deadlines, contract prices will therefore be higher.

This is not the case for classic financial products, rather it is just the opposite, the closer deadlines are more expensive than the subsequent ones, since there are no storage costs but their possession generates an interest and not a cost for those who hold it. .

Returning to raw materials, it is possible, however, that due to geopolitical or climatic factors, the situation of contango may disappear, or the deadlines of futures on the nearest raw materials may become more expensive than those more distant. This anomalous and unexpected situation is called backwardation.

But to better understand these details we will be waiting for you in the next episode on the fundamental analysis in which we will talk about seasonality and the difference between a fundamental past analysis and one that looks to the future.