The fate of the oil rally could be in Trump’s hands, says RBC’s Helima Croft

With President Donald Trump deliberating U.S. involvement in Syria, commodity markets already see the rising tensions as a boon to oil, says RBC's Helima Croft.

Days after a suspected Syrian chemical weapons attack on a rebel-held suburb of Damascus, Trump directed a tweet toward Moscow on Wendesday saying that missiles "will be coming."

"This geopolitical backdrop is occurring against a tightening market right now," Croft, head of commodity strategy, told CNBC's "Futures Now" on Tuesday. "We think it could be the upside for prices. As long as we don't think we're going into a trade war, we think the risks are weighted to the upside right now."

A push-pull in the market in recent weeks has kept crude prices in a range, says Croft. Prices have been caught between escalating risks in the Middle East providing upside and the threat of a trade war presenting downside pressure.

Now that fears over a trade war are easing, the likelihood that increased conflict in the Middle East will choke off supply is providing the next big breakout for crude oil prices. Market attention will be focused on developments in Syria and the potential for "imminent U.S. military action" in the region, says Croft.

"Do we potentially get into a confrontation with Russian and Iranian forces in Syria?" she asked. "Do we have something that has a contagion risk in the broader Middle East?"

It's not just Syria, she notes — increasing conflict between Yemen and Saudi Arabia will likely also boost oil prices. Yemen could prove the "tripwire" in the region as it directly strikes Saudi Arabian energy targets, Croft said.

"This proxy war issue in the Middle East really could seize market attention," said Croft. "Last week we had an attack on a Saudi oil tanker in the Bab al-Mandab Strait, and I think there will be a perception that the Middle East is getting a bit of a rougher neighborhood for oil."

If conflict in the broader Middle East region escalates, and the U.S. becomes more involved in the quagmire, global oil prices could retest recent highs and even move beyond $71 in Brent crude and $66 in West Texas Intermediate, predicts Croft. WTI briefly topped $66 a barrel at the end of January but has not exceeded $67 since December 2014.

Outside of geopolitical pressures, efforts to rebalance markets through production limits have worked to tighten the global supply-demand picture. The Organization of the Petroleum Exporting Countries has had an output agreement in place since late 2016. The bloc could extend the deal once it expires at the end of the year.

"The market has been rebalancing," said Croft. "We've had a situation where the OPEC cuts have proven to be very effective. We have demand looking constructive and as we approach summer we are seeing this rebalancing really taking hold."

WTI crude rose Wednesday a day after surging amid receding fears of a trade war. As of Tuesday, prices have risen 1 percent this month were up 8 percent this year.

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