A:

a. The basis is positive.

b. Future prices are higher than cash prices.

c. The market is in backwardation.

d. Supply disruptions are abating.


Answer: B

The other answers are associated with backwardation, the opposite of contango.

RELATED FAQS
  1. What's the best way to play backwardation in the futures market?

    Backwardation is a market condition in which a futures contract far from its delivery date is trading at a lower price than ... Read Answer >>
  2. Is backward integration the same thing as vertical integration?

    Learn if there are any differences between backward integration and vertical integration. Learn where on the production line ... Read Answer >>
  3. What is the best reason to pursue a backward integration?

    Learn if backward integration is a good or bad move for a business. Learn what backward integration does for a business's ... Read Answer >>
  4. What are the disadvantages of backward integration for a mid-sized business seeking ...

    Learn more about backward vertical integration and the disadvantages of this business strategy for some small and midsized ... Read Answer >>
  5. What is backward integration and how does it relate to economies of scale?

    See how a firm can realize greater economies of scale by engaging in backward integration mergers with one or more of its ... Read Answer >>
  6. Is backward integration ever illegal?

    Learn more about backward integration and why this strategy is often controversial. Explore ways many businesses and consumers ... Read Answer >>
Related Articles
  1. Trading

    What is the Theory of Backwardation?

    Backwardation occurs when the futures price of a commodity is lower than its market price today.
  2. Investing

    Got A Commodity ETF? Watch Out For Contango!

    With more investors seeking commodity exposure through ETFs, being familia with the concept of contango is critical.
  3. Investing

    USO Vs. DBO: Comparing Oil ETFs

    Discover two major oil ETFs, The United States Oil Fund and The PowerShares DB Oil Fund, and the major differences between the two funds.
  4. Investing

    UNG: US Natural Gas ETF Performance Case Study

    Explore the performance of the United States Natural Gas Fund since 2012, including the influence of contango and backwardation on the fund's returns.
  5. Investing

    Is USO a Good Way to Invest in Oil?

    The United States Oil Fund is better suited to short-term investors who actively manage their portfolios.
  6. Insights

    Investors Share Their Fears Following Election

    We asked, and you answered: what's your biggest financial concern after the 2016 election?
  7. Financial Advisor

    How to Publish on Investopedia's Advisor Insights

    A complete guide to publishing articles and answers on Investopedia's Advisor Insights platform.
  8. Investing

    How Oil ETFs Perform Relative to the Oil Price (USO, SZO)

    Oil price volatility presents opportunities for investors, but ETFs that track oil may not be fit for the purpose.
  9. Personal Finance

    Quiz: How Do Your Finances Measure Up?

    We look at average American debt, credit scores and much more so you can find out how you stack up.
  10. Small Business

    Every Business Needs To Answer These 5 Questions

    Although there are endless ways to reframe and rephrase them, there are only really five important questions that every business needs to answer.
RELATED TERMS
  1. Contango

    A situation where the futures price of a commodity is above the ...
  2. Backwardation

    A theory developed in respect to the price of a futures contract ...
  3. Convergence

    The movement of the price of a futures contract towards the spot ...
  4. Backward Induction

    The process of deducing backwards from the end of a problem or ...
  5. Forwardation

    A term used in pricing futures contracts. Forwardation is a ...
  6. Structural Change

    An economic condition that occurs when an industry or market ...
Hot Definitions
  1. Stagflation

    A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, ...
  2. Notional Value

    The total value of a leveraged position's assets. This term is commonly used in the options, futures and currency markets ...
  3. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. ...
  4. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  5. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  6. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
Trading Center