Legal Definitions - market-out clause

A market-out clause is a provision in a contract that allows a buyer to lower the purchase price of a product if market conditions make it too expensive to continue buying at the agreed-upon price. This clause is commonly used in the oil and gas industry, where the price of natural gas can fluctuate greatly depending on market conditions.

For example, let's say a pipeline company agrees to purchase natural gas from a well owner at a fixed price for a certain period of time. However, if the price of natural gas drops significantly due to increased supply or decreased demand, the pipeline company may activate the market-out clause and request a lower price. The well owner can then choose to accept the lower price or cancel the contract altogether.

Market-out clauses can also refer to competing fuels, such as fuel oil. In this case, if the price of fuel oil drops significantly, the pipeline company may activate the market-out clause and request a lower price for natural gas.

Overall, market-out clauses provide flexibility for both buyers and sellers in volatile markets, allowing them to adjust prices to reflect changing market conditions.