Road to oil price recovery will be bumpy, says Al Sabban

Oil market recovery will take time as there is still surplus in the market, said Mohammad Al Sabban, Professor of Economics at King Abdulaziz University and member of the Saudi Supreme Economic Council.

Supply cuts from Nigeria and Canada have given a false impression that the oil market is on its way to balancing, Al Sabban told CNBC Arabia in a televised interview.

Breakeven point will take some time, at least two to three years, Al Sabban said.

“Since crude prices have remained above $45/ barrel since March, this gives an impression that oil prices are on their way to reaching $60, but I don’t think this will be this year as low production costs are encouraging more output, which leads to low prices,” he added.

The global economic downturn and Britain’s exit from the European Union— which is expected to be see other EU countries follow suit— are all factors affecting demand for oil.

With Britain’s GDP seen to drop 5 percent within the coming two years, global oil demand will shrink, leading to a decline in prices, Al Sabban said.

Canada, Nigeria, Iran and other producers are on there way to restoring previous production levels, which, along with current inventory level, will contribute to increasing output surplus, he added.