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Term Structure (of Futures Prices)

Trading Term

Term structure refers to the relationship between futures prices for the same commodity with different expiration dates. This structure reflects market expectations of future supply, demand, and storage costs. Two common configurations are contango (when longer-dated futures are priced higher than near-term contracts) and backwardation (when near-term contracts are priced higher than later ones).

In commodities like crude oil or natural gas, the term structure can signal inventory levels, production trends, and seasonal consumption patterns. Traders, hedgers, and analysts monitor these curves to assess market sentiment, profitability of storage, and arbitrage opportunities. Changes in term structure are also influenced by macroeconomic shifts, transportation costs, and geopolitical events.

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