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Oil hits two-year high and the path of 'least resistance is higher'

Oil prices surged Monday, hitting the highest level in more than two years, and one market watcher says the political shake-up in Saudi Arabia over the weekend leads him to believe that the rally could just be getting started.

Arrests made on Saturday in Saudi Arabia of prominent leaders, including billionaire investor Prince Alwaleed bin Talal, appeared to buoy oil prices early Monday, sending the price of crude higher by more than 2 percent. The prospect of destabilization within the oil-rich kingdom could stand to benefit crude prices.

The oil outlook is bullish at these levels, said Phil Streible, senior market strategist at RJO Futures, in a note Monday morning to clients. Crude's leg higher last Friday, he wrote, triggered a bullish breakout over a previous weekly high.

"A combination of internal political trouble in Saudi Arabia combined with another decline in U.S. rig operating counts and a definitive extension in 'risk on' psychology leaves the past of least resistance pointing upward," he added.

Kevin Caron, senior portfolio manager at Washington Crossing Advisors, is less optimistic on the space, cutting his rating on the energy sector from overweight to neutral. As oil prices have remained volatile this year among supply concerns, the S&P 500 energy sector has badly lagged the market as the second-worst performing sector in 2017.

"The stock market has rallied strong in anticipation of a better economy and here it is — oil prices are up in the last year or so, but supply concerns are ahead. So at this point, we're fairly neutral on the commodity, and the group," Caron said Friday on CNBC's "Power Lunch."

WTI oil on Monday hit its highest level since July 2015, trading as high as $57.33 per barrel, up 35 percent from its 2017 low in June.

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