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Ketayun:
This is my understanding of these terms.
In commodities, e.g. oil, cocoa, etc., the contracts for
future delivery carry a higher price than contracts for
near term delivery.other factors being equal.
So a contract for oil expiring in 6 monthsm would usually
cost more than the same contract expiring in 30 days.
This is due to several factors one of which is the carrying
cost. This normal situation is called "Contango" but I'm
not sure the origin of the term.
However, a year ago long-delivery oil was priced below the
short-delivery oil and this unusual situation was referred
to as backwardation. I believe this term is appropriate
because the relationship of long term to short term is
backwards.
I hope the RT'ers who deal in commodities can give
a better explanation.
BTW at the time of the backwardation in oil occurred
it was explained partly as due to temporary loss of
refinery capacity and was a near term factor only.
Regards,
Stan R.
----------
From: R.E.Turner <rturner@xxxxxxxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Subject: Re: contango/backwardation
Date: Tuesday, December 01, 1998 2:23 PM
Barrons' futures editors used to constantly write about this, maybe they
still do? Check them out for further refrences.
Russ
-----Original Message-----
From: Ketayun <ketayun@xxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Tuesday, December 01, 1998 12:16 PM
Subject: contango/backwardation
Does anyone have any information on Contango or backwardation?
Thanks,
Ketayun
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