Rollover & basis
How does a sudden shortage in immediate physical delivery supply push a continuous curve into extreme backwardation?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A sudden physical supply shortage drives nearby delivery months to trade at a premium over deferred months, pushing the forward curve into backwardation as buyers pay for immediate supply.
How it works
Scarcity creates urgency for immediate physical possession, so spot and near-term futures prices rise above longer-dated contracts, reversing the typical contango cost-of-carry structure.
An example
Near-month oil trades above far-month during shortage.
Risk & limitations
Backwardation can reverse quickly once supply normalizes.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.