Opec expects oil demand to partially recover next year and grow by about 7 million barrels a day, the group said in its latest monthly market outlook.
Total demand for hydrocarbon-based liquids is projected to reach 97.7 million bpd next year.
However, the demand for oil will remain below pre-coronavirus levels.
It is expected fall by 8.9 million bpd this year, after Opec revised its earlier estimate by 100,000 bpd.
The revision reflected “slightly better-than-expected oil demand from the OECD region in the second quarter of 2020, which more than offset downward adjustments to non-OECD oil demand during the same quarter”, Opec said.
The Opec+ alliance, led by Saudi Arabia and Russia, is expected to consider increasing output at the group’s ministerial monitoring committee meeting on Wednesday.
The group is cutting output by 9.7 million bpd to reduce oil stocks and support an industry affected by a record fall in demand and prices due to the pandemic. The alliance is expected to ease its curbs by the end of the month.
Opec+ laggards Nigeria and Iraq yesterday pledged to fully comply with the curbs in the coming months.
In a phone conversation with Saudi Arabia's energy minister Prince Abdulaziz bin Salman, Nigeria's Minister of State for Petroleum Resources, Timipre Sylva said the West African producer had not yet met the terms of the agreement, according to a joint statement carried by the Saudi Press Agency.
The country will raise its compliance levels from this month up to September to compensate for producing above its quota in May and June.
“Saudi Arabia and Nigeria reiterate their firm commitment to the Opec+ agreement and to the level of production cuts to reduce output,” the two countries said.
Iraq's new oil minister Ihsan Abdul Jabbar Ismail also vowed to make additional cuts until September after the country exceeded its quota in the same period.
The group last month extended its two-month agreement to cut 9.7 million bpd until the end of July.
Opec+ is expected to maintain the cuts until April 2022, with tapered restrictions set to begin from next month.
The alliance could increase supply by more than 2 million bpd in August, said Edward Bell, senior director for market economics at Emirates NBD.
“We have assumed that Opec+ countries stick to their targets fully for 2020 to 2021 and the increase in levels won’t be enough to push the market into surplus, provided demand recovers as strongly as the [International Energy Agency] assumes,” he said.
The agency said it expects the collapse in oil demand to slow down in the second half. In its latest oil market outlook, the agency said overall demand for this year would be about 92.1 million bpd, with the pace of decline slowing to 5.1 million bpd in the second half. It also projected tighter supply conditions for the rest of the year.
A supply deficit is expected to be caused by production shut-ins around the world, notably in the shale basins of North America, and curbs being enforced by the Opec+ alliance.
Jasper Lawler, head of economics at the London Capital Group, said Opec+ could ease production cuts by 20 per cent during its meeting on Wednesday.
“Demand is coming back, and some oil production should come back with it,” he said.
Higher supply could be “price negative” in theory, but in this scenario, it could probably be a positive, he said.
“Now that the market expects the cuts to be eased, it would display a lack of confidence from Opec in the demand outlook if they extended the current quotas.”
Oil prices, which are currently at four-month highs, fell for a second consecutive day on the news of a possible supply increase from Opec and allied producers.
Brent, the commodity benchmark under which two thirds of the world’s oil trades, fell by 1.59 per cent to $42.04 per barrel at 5.12pm UAE time. West Texas Intermediate, which tracks US crude, fell by 2.07 per cent to $39.27 per barrel.
Global oil demand is “on the mend”, said Bank of America Securities in a research note.
“Demand is improving rapidly, especially in driving mobility, as countries around the world are rapidly easing their lockdowns and road traffic is somewhat normalising,” the bank said.