Kilduff: IEA energy report raises geopolitical concern

Volatility in the oil patch: Pro

The International Energy Agency said Tuesday its core expectation is for oil prices to return to $80 a barrel by 2020, but possible scenarios outlined by the Paris-based organization raise geopolitical concerns, Again Capital partner John Kilduff said.

The chance that crude costs will remain stuck between $50 and $60 per barrel well into the 2020s cannot be ruled out, the IEA reported. The conditions that could bring about this scenario include weak near-term economic growth, resilient production from non-OPEC producers, and "a stable Middle East in which key producers look to increase their share of the market."

Read More Oil price to recover to $80 only by 2020: IEA

This last condition is particularly concerning, Kilduff said Tuesday.

The geopolitical and energy security implications of Saudi Arabia and the gulf states increasing their share of the market from 40 percent to as much as 60 or 70 percent would be "terrible" for the United States, he told CNBC's "Squawk Box."

To be sure, the IEA said the strain that low commodity prices put on OPEC members' budgets look "increasingly unlikely."

But Kilduff also believes non-OPEC supply will indeed prove more resilient than previously thought, which could bring about the IEA's lower-for-longer outcome.

He insisted market watchers are underestimating U.S. producers' ability to "flip the switch" on unconventional oil output, thanks to a buildup of drilled but uncompleted wells that can be easily brought online when it becomes economical.

"There is probably upwards of maybe a million barrels a day standing by to cash in I think even on oil that gets above $50 a barrel," he said.

U.S. crude was trading at about $44 on Tuesday and has fallen more than 8 percent in the last four sessions.

The IEA's $80-per-barrel expectation could come as early as the end of 2016 or start of 2017, added Dan Pickering, co-president at Tudor, Pickering, Holt & Co. He believes oversupply should start to ease in the next 12 to 18 months.

"I think we're going to get a tighter market faster than the IEA is talking about," he said on CNBC's "Power Lunch."

President Barack Obama's rejection of TransCanada's Keystone XL pipeline — which would have brought heavy oil from Canada to U.S. Gulf Coast refineries — also plays into Saudi and gulf state energy dominance, Kilduff said.

Read More Obama administration rejects Keystone XL pipeline

The Keystone XL project faced opposition from environmentalists because it would have transported a type of oil that requires an energy-intensive process to get it flowing, thereby boosting emissions.

Kilduff said the pipeline would have significantly reduced U.S. dependence on crude imports from the Middle East, Venezuela and West Africa. Proponents have touted the benefit of importing crude from close ally Canada.

"If you're going to do the cost-benefit analysis, I was saying you should do it despite some of the misgivings you may have about that particular type of oil because its just too great a number for us to have safe, secure supply down to our Gulf [Coast] refining center," he said.

CNBC's Jacob Pramuk contributed to this report.