(Reuters) — Saudi Energy Minister Khalid al-Falih said the oil market is heading in the right direction but still needs time to rebalance, the London-based newspaper Asharq al-Awsat reported Monday.

“In my opinion, market fundamentals are going in the right direction, but in light of the large surplus in stockpiles over the past years, the cut needs time to take effect,” he told the newspaper, referring to a global deal to curb oil production.

“Current expectations indicate the market will rebalance in the fourth quarter of this year, taking into account an increase in shale oil production,” said Falih.

Asked about the recent drop in oil prices, he said: “Markets determine prices but are themselves driven by unpredictable variables beyond the control of producing nations.”

"Short-term volatility is mostly a reaction to short-term factors ... as well as the role of speculators in stock markets that increase market volatility."

Oil prices dipped on Monday, weighed down by a continuing expansion in United States drilling that has helped to maintain high global supplies despite an initiative led by the Organization of Petroleum Exporting Countries to tighten the market by cutting production.

The price of oil is down around 14 per cent since late May, when OPEC producers extended their pledge to cut output by 1.8 million bbls per day by an extra nine months.

Falih said there was a relatively big draw of around 50 million bbls from floating storage and a drop in industrialized nations' onshore storage of 65 million bbls compared to July last year.

“The market often tends to ignore these criteria and focus on the drop in U.S. inventories that came below expectations,” he said.

Compliance in April and May with the OPEC-led output deal was above 100 per cent, he said.

Falih also said he expects Libya's production to return to normal levels.

OPEC members Libya and Nigeria were exempted from the supply cuts because unrest had curbed their output.

"It is inappropriate to pressure Libya to slow the recovery in its production," he was quoted as saying.

He said production levels in Libya and Nigeria were within the range determined when OPEC, meeting in September last year in Algeria, decided to cut output for the first time since 2008.

“They shouldn't be considered a threat to the initiative.”

OPEC’s output rose by 336,000 bpd in May to 32.14 million bbls per day, led by a rebound in Nigeria and Libya, the 14-country organization said last week in its monthly report.