WTI Crude Oil Futures Turn Negative: Will Airlines Go Bankrupt?

Just today, May WTI crude oil futures fell from a once-high US$147.25 per barrel (July 11, 2008) to below zero, even plunging to negative US$40. This is an era never seen in modern history, revealing the global market economy’s predicament: no planes to fly, no tankers to run, and even warships halted due to COVID-19 infections, turning the price of a barrel of oil cheaper than an empty barrel.

Falling below zero means buyers are paying you US$40 to take the oil barrel away quickly, so the company does not have to bear high storage management costs.

I’ll give you money, hurry up and do it

However, since airlines’ crude oil futures are all long-term procurement contracts that spread the average price to maintain operating costs, if they now passively follow the rules of the global financial market, they are probably not far from bankruptcy.

At this moment of global COVID-19 spread, rather than saying crude oil futures prices are worthless, it is more accurate to say this is only a short-term market panic. But even if rationality will eventually stabilize in the long run, it is hard to suppress the spread of fear, and large-scale default events on a world scale are expected to appear like fireworks.

In fact, with crude oil futures prices turning negative, airline management might prefer to let long-term procurement contracts default, then use the force majeure of the 2019 novel coronavirus pneumonia (COVID-19) to file lawsuits and arbitration with international arbitration tribunals, or even negotiate privately behind the scenes. All of these are more practical than swallowing this long-term procurement contract and going bankrupt.

In recent days, British media just published the world’s top ten most dangerous airlines. Now, after being tossed around by crude oil futures prices falling below zero, even those that do not die will be half dead. We are also glad that the list did not mention the Republic of China’s two major national carriers, “China Airlines” and “EVA Airways”. Coupled with domestic protectionism, I believe these two leading airlines can safely weather this tsunami (as long as politicians do not stir up political renaming to hold them back).

Postscript: I have already heard many reports of people jumping off buildings after disastrously failing to bottom-fish and gamble. (Please call the Lifeline 1995 hotline for assistance.)