Oil markets slow to balance, OPEC economists say

Parties to an agreement led by the Organization of Petroleum Exporting Countries to balance the market through managed production declines decided to extend the arrangement by three months into early 2018. That led to a downturn in crude oil prices as many market watchers were anticipating deeper cuts.

The OPEC-led effort established a floor under crude oil prices during the first quarter of around $50 per barrel, though that has emerged recently as a ceiling because of production gains from the United States, with some OPEC members exempt from the agreement and even some operating within the multilateral arrangement.

In its monthly market report for June, OPEC economists said production from outside the group should increase by about a half-million barrels per day, with the United States seen as the main contributor to growth, followed by Brazil and Canada. For parties to the agreement, Russia's production during the second half of the year should fall by about 130,000 bsteels per day. Kazakhstan, another contributor, is expecting more oil from its giant Kashagan field and OPEC said adjusting output to below levels outlined in November "seems to be difficult."

Secondary sources reporting to OPEC economists, meanwhile, said only four of the 13 member states produced less oil in May than they did in April. Total OPEC production for May was 32.1 million barrels per day, an increase of about 1 percent, or 336,000 barrels per day, from the previous month.

That comes as oil demand accelerates in the second half of the year, though total consumption is largely in line with the seasonal average.

The U.S. Energy Information Administration reported gains last week in oil storage inventories, sparking concerns about market balance. OPEC said declines in global oil inventories should continue for the year because of the multilateral deal.

"These trends along with the steady decline in oil in floating storage, indicate that the rebalancing of the market is underway, but at a slower pace, given the changes in fundamentals since December, especially the shift in U.S. supply from an expected contraction to positive growth," the report read.

Crude oil prices had charted gains in the Monday session as investors looked to capitalize on trends following last week's declines, but were inching lower following the release of OPEC's monthly market report.

On Monday, sources close to OPEC told Kuwait's state-run news agency that deeper cuts may be necessary.