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This is the biggest upside risk in oil, says strategist

The situation in Nigeria is the biggest upside risk in the oil markets, strategist Helima Croft said Monday.

The country's oil output has fallen to its lowest in decades following several acts of sabotage by militants.

"If Nigeria goes offline, it's sticky. These armed militants are very intent on shutting down production. They have the capacity to do so," Croft, global head of commodity strategy at RBC Capital Markets, said in an interview with CNBC's "Power Lunch."

"I don't think we should write them off because they are armed to the teeth."

Oil prices surged Monday on the growing Nigerian oil output disruptions and a new outlook by Goldman Sachs that said the market had ended almost two years of oversupply and flipped to a deficit.

U.S. crude futures settled up $1.51 at $47.72 a barrel, at their highest since Nov. 3, when they closed at $47.90.

Brent crude futures were trading at $48.99 per barrel, up $1.13, or 2.36 percent.

Supply disruptions around the world of as much as 3.75 million barrels per day have wiped out a glut that pulled down oil prices by as much as 70 percent between 2014 and early 2016.

However, despite the recent drop in supply, oil expert John Kilduff isn't necessarily convinced levels will stay low.

"This is going to be the test. Does this run at $50 right now bring on additional U.S. tight oil production? Does the rig count stabilize and even go back up? I think there's a lot of desperation out there. I think you are going to see these folks try to lock in $48, $50 barrel oil here and go for it," the founding partner of Again Capital said in an interview with "Power Lunch."

Crude production in the U.S. has fallen to 8.8 million BPD, 8.4 percent below 2015 peaks, as the sector suffers a wave of bankruptcies. The latest victims are SandRidge Energy and the master limited partnership Breitburn Energy Partners, which filed for bankruptcy protection on Monday.

Kilduff also believes the market is vulnerable because the events in Nigeria are transitory, noting that Libya has been on and off the market and the Iranians came back online much quicker than many anticipated.

In addition, he questions the importance of the Nigerian outage.

"For the past year or so, a lot of their own went unsold for points of time. There were scores of cargo sitting out there with nowhere to go," he said.

But Croft thinks that is exactly why Nigeria is important.

"We said the Nigerian barrels are the homeless barrels that are choking the market, so if we cleared off Nigeria. That was your path to higher markets."

How to play it

Oil stocks have moved higher since crude's February lows, but analyst Mike Kelly cautions investors to not get greedy.

That's because U.S. producers will "come back with a vengeance" once oil hits $55, the managing director and senior analyst at Seaport Global Securities told "Power Lunch."

"I still think the wind's at your back here in the short term. You get to that $55, pushing $60 level, you've got to take chips off the table," said Kelly.

He specifically likes Newfield Exploration, Continental Resources, Energen and Cimarex Energy.

— CNBC's Jennet Chin and Reuters contributed to this report.

Disclosures: Kelly, his family and his firm do not own shares of NFX, CLR, EGN. XEC is an investment banking client.

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