Backwardation and Contango

CFA Level II Alternative Investments
#1

I understand what does backwardation and contango mean, but I do not get the market factors that create them. In other words, why would futures prices be lower than spot prices at times and vice versa?

#2

General idea, formula from level1:

futures price = spot price + storage costs – convenience yield

Relative to spot prices, futures prices are higher when storage costs are higher, and futures prices are lower when the convenience yield is higher.

#3

There.

That’s better.

#4

This made a piece of cake, thanks a lot!