By David Hodari 

Even a record-breaking rise in oil demand next year won't be enough to spur a recovery back to pre-coronavirus levels, according to the Organization of the Petroleum Exporting Countries.

In its widely read monthly report, the cartel said it expected that the world's demand for oil would increase by 7 million barrels a day next year, after a forecast 8.9 million-barrel-a-day decline in 2020.

While annual demand for gasoline, diesel and other refined products was seen rising by a record amount, "efficiency gains, including tele-working and teleconferencing, may cap oil demand gains in 2021 to remain below precrisis levels of 2019," OPEC said.

Its remarks reflect growing investor concern about the impact of another wave of Covid-19 infections hitting the U.S., among other countries. That jump in cases could jeopardize the recovery in oil markets and the global economy, OPEC said.

The report came out Tuesday, the day before an OPEC committee was set to meet to discuss the production cuts that have helped tighten the oil market in recent months. Producers led by Saudi Arabia, OPEC'S de facto leader, are expected to recommend that the cartel and its allies proceed with tapering those curbs, which are set to relax by 2 million barrels a day from August.

Concerns about rising coronavirus cases and an increase in global oil supply have pressured crude prices in recent weeks, but Brent crude oil, the global benchmark, closed up 0.4% at $42.90 a barrel, Tuesday. Front-month futures for West Texas Intermediate -- the U.S. benchmark -- closed 0.5% higher at $40.29 a barrel.

OPEC slightly softened its forecast for the hit to demand from the coronavirus in 2020, trimming it by 100,000 barrels a day, but deepened its prediction for damage to the global economy.

The Vienna-based organization now sees global growth shrinking by 3.7% this year, more than the 3.4% decline it estimated last month, citing a steeper impact from the pandemic on some emerging and developing economies.

There have been signs of recovery in the oil sector, OPEC said, pointing to the cooperation between major producers on cutting output and tightening the balance of supply and demand.

The market will continue to gradually stabilize in the second half of 2020, before rebounding next year largely due to improved economic momentum, the organization said.

The cartel added that its 2021 forecast was dependent on "considerable uncertainties" and assumed "no further downside risks materialize."

The report provided detail on the activities of the world's largest oil producers and consumers when oil prices were at their historic lows.

In China, the world's largest oil importer, crude imports surged to a record high of 11.3 million barrels a day in May, with OPEC citing the arrival of a wave of cargoes purchased when prices were low. Meanwhile, refined product exports from China more than halved from their record highs of the previous month, with rallying prices and a glut of supply stinging refiners.

Saudi Arabia cut production by a further 1 million barrels a day in June after leading the charge to implement additional reductions. Iraq, which has faced scrutiny from other OPEC members for its lack of compliance, cut by 370,000 barrels a day according to official figures, although secondary figures cited by OPEC put its reduction at 449,000 barrels a day.

With OPEC expected to begin softening its cuts from August, analysts are concerned that a rise in output could put the market recovery on shaky ground. The cartel expects production from its non-cartel rivals to rise by more than 0.9 million barrels next year, in what may reinvigorate the pressure non-OPEC countries have piled on OPEC in recent years.

"Despite the auspicious trend line, we still believe that the decision [to soften curbs] represents a significant leap of faith," said Helima Croft, head of global commodity strategy at RBC Capital Markets. "A key question is whether the improved performance will continue to hold as the cuts begin to ease."

Write to David Hodari at David.Hodari@dowjones.com

(END) Dow Jones Newswires

July 14, 2020 18:50 ET (22:50 GMT)

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