Backwardation vs. Contango
The oil forward curve — the price of contracts for delivery in different future months — takes one of two shapes. Backwardation means near-term oil costs more than later oil, a sign of tight prompt supply. Contango means the opposite, later oil costing more, a sign of comfortable current supply. The live WTI and Brent curves are below.
The Two Shapes
Backwardation
- Front-month (nearest) contract trades ABOVE later-dated contracts.
- Signals tight prompt supply — buyers pay a premium to secure oil now rather than wait.
- Common during supply disruptions, low inventories, or when OPEC+ is holding output back.
- Generally read as a bullish signal for the physical oil market.
Contango
- Front-month contract trades BELOW later-dated contracts.
- Signals ample near-term supply — there is little urgency to buy prompt barrels.
- Common during oversupply, weak demand, or when storage is cheap and plentiful.
- Can make "cash and carry" storage trades profitable once the gap exceeds storage and financing costs.
Both terms describe the shape of the curve — they say nothing on their own about whether the price LEVEL is high or low. A market can be in steep backwardation at $50 or at $120.
WTI Forward Curve
––Brent Forward Curve
––Real Examples
| Episode | Curve shape | What happened |
|---|---|---|
| April 2020 | Extreme contango | COVID-19 demand collapse filled storage at Cushing, Oklahoma; the May WTI contract settled at −$37.63 on April 20 — the first negative price in oil-futures history, as holders paid others to take barrels off their hands. |
| 2022 | Steep backwardation | Russia's invasion of Ukraine and the sanctions that followed raised fears of a supply shortfall; buyers paid up sharply for prompt barrels relative to contracts a year or more out. |
| 2015–2016 | Persistent contango | OPEC held output high to defend market share against US shale; oversupply pushed WTI below $30 and kept the curve in contango for an extended stretch. |
Annual WTI figures from oil price history; the full account of each episode is on oil crises, 1973–today.
Backwardation & Contango FAQ
What is the difference between backwardation and contango?
Backwardation is a forward curve where near-term contracts cost more than later ones — buyers pay a premium for oil now, which signals tight prompt supply. Contango is the opposite: later months cost more than the front month, signaling comfortable current supply. The terms describe the SHAPE of the curve, not a price level.
Is backwardation bullish or bearish for oil?
Backwardation is generally read as bullish for the physical market — it means buyers are willing to pay up for immediate barrels, which usually happens when inventories are tight or a supply disruption is underway. Contango is generally read as bearish or neutral, consistent with ample near-term supply or oversupply.
Why does contango encourage storing oil?
When later months are priced well above the front month, a trader can buy oil now, pay to store it, and lock in a higher sale price for future delivery — a "cash and carry" trade. That only works while the gap between contracts exceeds storage and financing costs; when contango is wide enough, floating storage (tankers used as warehouses) becomes profitable, as it did in 2020.
What happened to oil prices in April 2020?
WTI's May 2020 futures contract settled at about −$37.63 on April 20, 2020 — the first negative price in oil-futures history. Contract holders had to find storage or take delivery at Cushing, Oklahoma, which was filling up fast as COVID-19 demand collapsed; some paid buyers to take the barrels off their hands rather than pay for storage or delivery they could not use. It is the most extreme contango event on record.
Was 2022 a backwardation market?
Yes. WTI averaged about $94.33 in 2022, and the forward curve ran in steep backwardation for most of the year as Russia's invasion of Ukraine and sanctions raised fears of a supply shortfall — buyers paid up sharply for prompt barrels relative to contracts a year or more out.
Where can I see the current oil forward curve?
Live WTI and Brent term structures, updated on the same 5-minute cycle as spot prices, are below and on the /prices page — each labeled CONTANGO or BACKWARDATION based on where the front month sits relative to the back of the curve.