In late 1993, MGRM reported losses of about $1.3 billion in connection with the implementation of a hedging strategy in the oil futures market. In 1992, the company had begun a new strategy to sell petroleum to independent retailers at fixed prices above the prevailing market price for periods of up to 10 years. At the same time, MGRM implemented a hedging strategy using a large number of short-term derivative contracts such as swaps and futures on crude oil. This led to a timing (maturity) mismatch between the short-term hedges and the long-term liability. Unfortunately, the company suffered significant losses with its hedging strategy when oil market conditions abruptly changed to:

A. Contango, which occurs when the futures price is above the spot price

B. Contango, which occurs when the futures price is below the spot price

C. Normal backwardation, which occurs when the futures price is above the spot price

D. Normal backwardation, which occurs when the futures price is below the spot price