Get ready for a much bigger oil shock

So what's the biggest trade in the markets right now?

Could it be the one way bet on European fixed income with Draghi's massive bond-buying program set to obliterate anyone who challenges ludicrously low bond yields? Or the tech bull position with the Nasdaq around year-2000 highs?

Oil barrels prices Royal Dutch Shell Plc
Andrey Rudakov | Bloomberg | Getty Images

For now let's ignore the collapse in euro zone yield and the nose-bleeding valuations in tech and concentrate on my favourite trade - the brutal battle being fought in the oil market.

Last week, InterContinental Exchange revealed that the hedge-betters and speculators were piling into the oil trade in levels not seen since the middle of last year. You remember the middle of last year, that was when crude was still at $110 per barrel, pretty much double where it is now. So are we setting ourselves up for another massive bout of volatility after a few weeks of relatively calm price action?

The longs are out in force, according to the data but are they too early in calling an end to the oil price rout?

Brent may have had a fantastic rally in February, having plummeted to the low $40s region after last year's rout. But was that a dead cat bounce ignoring the still dreadful near term fundamentals?

Read MoreWhy oil decline could get ugly again soon

Despite a lot of excitement about the falling rig count and the huge number of job expenditure cuts across exploration and production, there is still over-production not only in the US but also across the world. In fact, if you believe the bears, then the US will shortly run out of storage space above ground.

The guys who've been in the industry and have seen cycle after cycle like this keep telling me that the cure for lower prices is lower prices. But when will we see supply and demand responses to $50-60 oil? Well, many of the global wells just can't afford to stop just yet, whether it is because of the need for Middle Eastern petro-dollars of the demanding Texan bank manager who still expects the oil well-related loan to be serviced.

Commodities tomorrow: Crude shorts hit another record
Commodities tomorrow: Crude shorts hit another record   

Surely the key factors in where we go next have still to come to the fore this year and we are still at the appetiser stage.

For many June, will be the main event. That month is when the next scheduled Organization of Petroleum Exporting Countries meeting is due to take place and it is possibly the most likely time we will see a supply response from the group representing around a third of global production.

The end of June just also happens to be the deadline for the Iran nuclear deal. If -- and it's a big "if" -- Iran gets a framework agreement by the end of this month, the country will be desperate to ramp up production of oil as quickly as possible. And, believe me, it may take them months if not years but they really want to ramp it up.

Iran doesn't just want to up its levels from the current 2.8 million barrels a day. It wants to first get to the 4 million barrels it was producing back in 2008 and then it wants to keep going on and on and on. That will set up Iran for a huge row with Saudi over OPEC production levels.

Yes, the Iran production growth story is just one but it makes factors such as Libya's piddly production oscillation and rig count obsessions in the US pale into insignificance.

So for me the phoney war going on in the oil market at the moment may just result in a stalemate until the middle of the year. That is when we may get the real battle. The one that may just justify at least one side of the extreme calls from $20 to back up to $90 per barrel.

- By Steve Sedgwick, anchor of CNBC's Squawk Box Europe