In the CFA curriculum , page 55 it reads:
“Oil fututres markets are often backwardated. Producers are holding real options - to produce or not to produce. Production occurs only if discounted futures prices are below spot prices, and backwardation results if the risk of future prices is sufficiently high”
They are saying backwardation is a necessary condition for production? Clearly this is false – oil markets were in contango in 2008 – producers kept producing.
What are they trying to say here?