07/08/2020

The 2020 oil price rollercoaster

Instability in the price of crude oil has a strong propensity to bring with it contractual and other disputes. In this article David Lewis QC and Oliver Caplin explore a few of the types of disputes that may arise, and recap some of the pertinent English law issues that might be relevant to their resolution.

Did the parties conclude a binding agreement?

In the context of escaping from and enforcing concluded contracts, we have seen much ink spilled recently on the interesting areas of force majeure and frustration, not least when the price of crude went negative (e.g. West Texas Intermediate’s fall to minus US$37.63/bbl in April 2020).

But there are other ways a party might seek to extricate itself from a sudden and unattractive change in the economics of an agreement to buy or sell crude or crude products.

One likely candidate, if a sudden fluctuation in the market coincides with the initial stages of the parties’ contractual journey, is to argue that a binding contract was never in place between the parties, and thereby seek to resile from a trade that had been on the cards, but which has, as a result of the market’s volatility, become an un-economic commitment. Conversely, if the deal economics point the other way, one might find a party seeking to hold another to a nascent agreement when only a few headline (favourable) terms had been agreed.

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