When futures prices are lower than the current spot price. Means the market expects prices to come down later, even though they're high right now. Right now oil is deep in backwardation. Front month Brent at $112, but contracts 10 months out are trading near $75.
That's a massive gap. It usually signals tight supply today but confidence it won't last. Traders are pricing in a temporary squeeze, not a permanent one. Important: backwardation can also mean storage is full and nobody wants to hold physical barrels.
The opposite, contango, is when future prices are higher, meaning people expect things to get worse. Most people mix these up.