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Negative Basis

Condition where a physical commodity price trades below its corresponding futures or benchmark reference price.

Negative basis occurs when the price of a commodity is lower than the relevant benchmark, often reflecting local supply excess or transportation constraints.

In oil markets, negative basis can indicate regional oversupply or weak demand. Traders may exploit this through arbitrage if infrastructure allows movement to higher-priced hubs.

It contrasts with positive basis, where local prices exceed benchmark levels. Basis risk can be material for physical traders and hedgers.

Managing negative basis exposure requires careful monitoring of logistics, storage, and market conditions.

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