Oil prices are heading back down toward $40. Here’s when: Analyst

Oil prices are likely to fall toward $40 a barrel as China's crude imports hit an inevitable ceiling, according to Matt Smith, director of commodity research at ClipperData.

Oil futures have rallied more than 90 percent to about $50 a barrel since their winter lows, but Smith said Friday the market is missing something in China.

"China is importing so much crude, it's absolutely insane. They're importing about a million barrels a day more than they are actually consuming," he told CNBC's "Squawk Box."

China put about 787,000 barrels of oil per day into storage in the first quarter, reported, citing Bloomberg data.

By Smith's count, China has stockpiled about 135 million barrels of oil. The trouble is the most optimistic estimates put China's storage capacity at 155 million barrels, he said.

In theory, China could hit capacity in 20 to 30 days, at which point imports will "drop off a cliff," he said.

Meanwhile, Saudi Arabia, Iran and Iraq are ramping up production, and higher prices appear to be eliciting a supply response from U.S. drillers, he said. On Wednesday, weekly data indicated U.S. output ticked up for the first time in three months.

Those factors could send crude prices spiraling down toward $40 a barrel, and perhaps even into the $30s, Smith said.

Smith made the call one day after Continental Resources Chairman and CEO Harold Hamm told "Squawk Box" he expects oil prices to end the year between $69 and $72 a barrel.

Hamm raises oil target
Hamm raises oil target