Oil prices are continuing to hover around 2014 highs, with market watchers waiting to see what happens when U.S. sanctions are re-imposed on Iran.
It remains to be seen whether major oil producers like Saudi Arabia and Russia will step into the breach to stop prices soaring after an expected dip in Iranian supply, a top analyst told CNBC on Tuesday.
Prices have risen since President Donald Trump decided last week to pull the U.S. out of the Iranian nuclear deal, meaning that sanctions will be re-imposed on the oil producer that are likely to impact its production and push prices higher.
Helima Croft, RBC Capital Market's global head of commodity strategy, said that a loss of Iranian oil would mean other traditional producers, like Saudi Arabia, having to step into the breach if OPEC was not to risk a million-barrel loss of production, on top of the 1.2 million barrel a day (bpd) supply cut it already makes as part of a deal with non-OPEC producers.
"This is so interesting. We're back to a situation that we did not anticipate of having to appeal to these traditional allies," she said. "Because if you reach infrastructure constraints in terms of ability to put additional barrels on the market and you're going to be taking off Iranian barrels — and don't forget Venezuelan production, which has played a huge role in balancing this market — and they (OPEC) could lose a million barrels year-on-year."
"So, in order to prevent a spike to $100, potentially, you have to go back to Saudi Arabia, you have to ask them to put barrels on the market," she told CNBC's "Capital Connection" on Tuesday.
Brent crude futures are currently trading at $78.71 a barrel while West Texas Intermediate (WTI) is trading at $71.36. Prices have hit highs not seen since November 2014 due to a tighter supply thanks to a production cut strategy between OPEC and non-OPEC producers like Russia to support and stabilize oil prices that fell in 2014 amid a glut in supply.
Prices are also rising on expectations that Iranian output could be sorely affected by Trump's decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA) last week.
The re-imposition of pre-deal sanctions and the threat of secondary sanctions, that penalize countries that do business with Tehran or Iranian organizations, are expected soon. Markets are expecting sanctions to affect Iran's oil production – which stood at 3.8 million bpd in March, according to OPEC figures.