normal backwardation

[manoogim]

i do not understand the difference between ‘backwardation’ and ‘normal backwardation’. what is the distinction there ?

 

[areyouserious]

http://www.youtube.com/watch?v=8JQthSNjskE&feature=fvwrel
I don’t know if anyone ever gave a video link on AF. Anyways, I guess this should help.

 

[Iginla2010]

areyouserious Wrote:
> I don’t know if anyone ever gave a video link on
> AF.
areyouserious?

 

[Omar Adnan]

Why 7-min video for this?
In backwardation, we compare the future price with the CURRENT spot price and see that future prices are lower (generally because it has been oversold - happens when suppliers believe that prices are going to decline)
No normal backwardation, we compare the future price with the EXPECTED spot price. As you might know, some would argue that future price should be unbaised indicator of EXPECTED spot price; however, deviations always exist. Because of so, the EXPECTED spot price will differ from future price and when the future price is below EXPECTED spot price, then we are having a normal backwardation
Hope this makes it clear
OA

 

[manoogim]

thank you both !

 

[Dreary]

It’s easy and straightforward…however, the last time they got me on this with a question that had a bit of a twist. Too bad, i don’t recall the question. Search…you may find the discussion.