Why the oil slump is not just a blip

Dhara Ranasinghe, special to CNBC.com
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Don't expect a bounce any time soon. That's the verdict on beaten-down oil prices from business leaders and experts gathered in Davos for the World Economic Forum.

"I don't see oil coming back up very quickly. There is a lot of oil in storage at the moment, so that will take some time to work through," Peter Terium, the CEO of Germany's biggest power producer RWE, told CNBC in Davos Wednesday.

"It's not just a blip, it's something that will have a lasting impact on things such as deflation and industrial development," he added.

Brent crude oil prices slid almost 50 percent last year in the biggest annual drop since 2008, amid weakening demand and a refusal by the Organization of the Petroleum Exporting Countries (OPEC) to cut supply. OPEC is an oil–producing group that provides about a third of the world's supply.

Karen Belier | AFP | Getty Images

Oil prices edged above $48 a barrel on Wednesday, having suffered further losses the previous day after the International Monetary Fund cut its forecasts for world growth and oil producer Iran said its industry could tolerate prices at $25 a barrel.

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One country that has suffered from the fall in the price of oil is Russia, which is already reeling from sanctions imposed on it by the West over its incursions into Ukraine.

"We think it (the oil price) will stay in a $40-$65 band for the next couple of years with some attempts to go below $45, but you will see oil recover after that," said Kirill Dmitriev, the CEO of the Russian Direct Investment Fund, set up in 2011 with $10 billion in government funds.

The outlook for oil, also known as 'black gold,' has been in the spotlight in recent weeks given the commodity's slide from highs above $110 a barrel last June.

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Brian Reynolds, chief market strategist at Rosenblatt Securities, told CNBC earlier this week that he thought oil prices were more likely to go down to $20 a barrel than go back up to $80 a barrel.

"It's tough to predict where oil will go but I doubt it will go back to $80. In fact I'm more likely to be dead before oil gets to $80 again, in other words not for decades to come," he said.

Back at Davos, experts gathered for the annual WEF stressed issues such as geopolitical risk that may not be fully factored into the oil price.

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"If you go back to last June when ISIS (Islamic State of Iraq and Syria) came on to the scene, we had $115 oil. It's amazing right now that geopolitics is not in the price of oil," said IHS vice chairman Dan Yergin, an authority on energy, international politics and economics.

"There is a surplus of geopolitical risk around the world but there is a bigger surplus of oil," he said.

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