The Iran nuclear deal is on the brink of collapse, yet oil traders continue to underestimate the impact of a fast-approaching supply shock.
A dramatic uptick in oil prices in recent weeks has partly been driven by mounting expectations that Donald Trump will soon pull out of the 2015 accord. The U.S. president must decide by May 12 whether to restore penalties on one of the world's biggest oil producers.
"President Trump's will-he-or-won't-he antics over Iran have been dominating the oil headlines of late… (But) any lingering hopes that the agreement will be amended to suit Trump's demands have now evaporated," Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note.
"A knee-jerk reaction can be expected whenever a formal announcement is made. After all, market participants will not want to miss the boat for a new era of Iranian sanctions," he added.
Bringing back sanctions on Iran could wipe out up to 1 million barrels per day of Iranian crude supply, which Brennock said could be enough to "propel oil prices towards $80 a barrel."
Trump, a fervent critic of the seven-party agreement, has long threatened to walk away from the landmark deal unless its European signatories and Congress reconcile his concerns.
The former New York businessman is thought to be unhappy about key aspects of the "insane" pact. He has complained the deal does not restrict Iran's nuclear activities for long enough and fails to stop the country's development of ballistic missiles.
In response, Iranian President Hassan Rouhani has said Trump has "no right" to renegotiate the deal and accused him of "maliciously violating" its conditions.
On Thursday, Iran's foreign minister also warned the Trump administration that it would not seek to renegotiate a 2015 nuclear deal with world leaders. In a message posted on YouTube, Mohammad Javad Zarif said Tehran would also be prepared to reject any ratification of the deal.
Brent crude, the global benchmark, briefly surged beyond $75 a barrel at the start of the month — its highest level in more than three years.
"I think for the rest of the year we are going to see $70 a barrel. But, honestly speaking, given the fundamentals… I think that there is more of an upside in the oil price than a downside right now," Rainer Steele, chief executive at OMV, told CNBC's "Squawk Box Europe" on Thursday.
When asked how he felt about the Trump administration's upcoming Iran deadline, Rainer replied: "I'm like all the others — just sit and wait for what is coming. But, honestly speaking, it is not turning to the better."
Alongside tensions regarding the Iran nuclear deal, another major driver of crude futures in recent months has been the ongoing international effort to try to clear a global supply overhang. The OPEC-led agreement, which came into effect in January 2017, has already been extended through until the end of this year — with producers scheduled to meet in June to review policy.
The output controls have widely been viewed as a success, with crude futures soaring in recent days to highs not seen since late 2014. Brent crude traded at around $73.65 on Friday morning, up 0.1 percent, while U.S. West Texas Intermediate (WTI) stood at $68.45, unchanged from the previous session.