The COVID-19 pandemic has brought with it unprecedented changes, including the first time that oil prices have gone into the negative thanks to traders panicking over the lack of storage options at Cushing, Oklahoma.

Now, concerns have been raised that European gas prices might turn negative due to the same lack of storage resulting from weak demand and a supply glut.

In the Dutch gas market, the day-ahead contract dropped below $US1 ($1.53) per million British Thermal Units last Thursday, the first time it has done so since 2006.

“With no clear sign of a slowdown in supply along with demand still muted due to COVID-19 protective measures, the landscape of an acutely over-supplied European gas market has become more pronounced,” Refinitiv Eikon gas analyst Xun Peng told Hellenic Shipping News.

Wood Mackenzie added that the UK had very limited storage capacity as both the industrial and power sectors had been hit hard by the COVID-19 lockdown.

“LNG exporters hoping to place cargoes into the UK market have the most to lose. There simply won’t be any more space,” Woodmac senior analyst Hadrien Collineau said.

Meanwhile, oil prices appear to have stabilised above the $US30-per-barrel mark as China’s oil demand climbs back above 13 million barrels per day, or about 90 per cent of its pre-pandemic levels.

Hopes for a rapid recovery have been tempered by the Chinese government breaking with its decades-long practice of setting an annual target for economic growth.

“We have not set a specific target for economic growth this year,” Premier Li Keqiang said.

“This is because our country will face some factors that are difficult to predict in its development due to the great uncertainty regarding the COVID-19 pandemic and the world economic and trade environment.”

China will still inject 3.6 trillion yuan ($771.4bn) in a bid to create up to 9 million jobs and boost its economy.

US shale oil players could also play a role in keeping oil prices in check, with a price of $US40 per barrel likely to entice them to start ramping production, which could lead OPEC, Russia and other countries that agreed to oil supply cuts in April to reverse their decision.

The West Texas Intermediate crude price is currently trading at $US32.99 per barrel while the broader Brent crude is at $US34.79.

Oil price chart, Brent crude in orange and WTI in red


ASX small cap oil and gas companies

Warrego Energy (ASX:WGO) is raising $15m through an oversubscribed placement of shares priced at 13c each to institutional and sophisticated investors.

The first tranche of 94.9 million shares worth $12.3m is expected to settle on May 28, while the second tranche of 20.5 million shares ($2.7m) is expected to settle in early July after shareholder approval is received.

Proceeds from the placement will be used to fully fund drilling of the West Erregulla-3 exploration and appraisal well this year and long-lead items for the planned West Erregulla-4 well.

“A successful WE-3 well could see the prospective resources in the northern area of the field converted to contingent resources and, possibly, the recognition of additional resources,” managing director Dennis Donald said.

“It would also provide a new and more complete data set that could potentially enhance our independent contingent resource estimate for the central area of the field.”