Oil prices continue to gain strength on growing confidence that a COVID-19 vaccine will be available soon and the expectation that OPEC+ will keep current production cuts for another three months rather than easing them in January 2021.

Highlighting this, Reuters reported that hedge funds and other money managers have purchased the equivalent of 69 million barrels (MMbbl) of oil in the six most important petroleum futures and options contracts in the week ending on 17 November.

This takes the total purchased by portfolio managers in the last two weeks up to 182MMbbl, increasing their total position in the six contracts to 539 million, the highest it has been since the start of September.

The US-centric West Texas Intermediate is currently priced at $US43.17 ($59) per barrel while the broader Brent crude benchmark is trading at $US46.16.

Other bullish signals include a drop in US crude oil and petroleum inventories from their peaks earlier this year and a strengthening of Asian oil demand.

Oil prices are widely expected to make gains in 2021, particularly in the second half of the year with the US Energy Information Administration noting in its November Short-Term Energy Outlook that growing oil demand and inventory draws next year could send Brent prices up to an average of $US47 per barrel.

Risks still weigh on oil prices

However, there remains a substantial risk that traders are overestimating the speed at which successful trials will translate into wide-spread immunisations that will in turn be required for normal business and international aviation to resume.

Oil prices remain vulnerable to a correction as the ongoing surge of COVID 19 cases in the US and Europe raises questions about how badly oil demand would be hit and how fast developed economies can recover.

Even the EIA expects that vaccines would only start having an impact on oil demand and spot until the second half of 2021.

“Once rolled out, the vaccine should ensure a recovery in oil demand back towards trend. But first inventory levels and spare capacity held by OPEC+ need to be reduced and this may take us towards the second half of 2021 before a meaningful oil price recovery can occur,” Saxo Bank head of commodity strategy Ole Hansen told oilprice.com.