Force majeure refers to unforeseeable circumstances that prevent parties from fulfilling contractual obligations, including natural disasters, wars, pandemics, government actions, or other extraordinary events beyond reasonable control. Force majeure clauses in trading contracts protect parties from liability when performance becomes impossible due to such circumstances.

In commodity and financial markets, force majeure events can disrupt supply chains, close trading venues, or prevent physical delivery, creating significant market impacts. These events often trigger contract renegotiation, delivery deferrals, or alternative settlement mechanisms. Understanding force majeure provisions is crucial for risk management and contract design in volatile markets.

Real-world example: A hurricane forces closure of Gulf Coast oil refineries, triggering force majeure clauses in gasoline supply contracts and causing spot prices to spike as traders anticipate supply shortages and seek alternative sources.