Backwardation is a forward curve where earlier months are priced above later ones. Somebody is willing to pay more for a barrel today than for the same barrel in three months, and that is a strange thing to do unless having it now is worth something.
It is worth something to a refinery that would otherwise run below capacity, or to a buyer facing a contractual obligation it cannot meet from stock. Economists call that value the convenience yield: the benefit of physical possession that a forward contract cannot deliver. Backwardation is the market pricing convenience yield above carry cost.
Note the asymmetry with contango. Contango has a hard ceiling at full carry, because storage is a trade anyone with a tank can do. Backwardation has no equivalent floor. To arbitrage backwardation you would need to borrow a physical barrel, sell it now, and return it later, and there is no deep lending market in crude oil. So backwardation can go as deep as scarcity demands, and in a genuine supply shock it goes very deep indeed.
Backwardation drains inventory, which is what closes the loop. Holding stock in a backwardated market means watching the value of what you hold decline toward the deferred price, so commercial holders release barrels rather than carry them. Falling stocks then tend to reinforce the backwardation. That feedback is why backwardated markets can persist longer than a naive supply-demand read would suggest, and why inventory levels and curve structure are usually read together rather than separately.
For a long position, backwardation is a tailwind. Rolling means selling the dearer expiring month and buying the cheaper next one, which adds value at every roll. See roll yield.