President Donald Trump's sustained bid to sanction Iranian crude exports could trigger a dramatic shortfall in global supply, strategists told CNBC on Thursday, amid renewed worries oil prices could soon rally up to triple digits.
Earlier this week, Trump urged OPEC to ramp up production levels in order to prevent further price rises ahead of the mid-term elections in November.
But OPEC and non-OPEC producers were thought to be unlikely to immediately respond to Trump's demands, after Saudi Arabia and its allies decided against pressing for an official increase at a meeting in Algeria last week.
"The unwillingness of the 25 producing nations to declare their intention to ramp up production in their effort to replace Iranian barrels all of the sudden produced a very tight supply and demand balance for the fourth quarter of this year," Tamas Varga, senior analyst at PVM Oil Associates, said in a research note published Thursday.
"As a result, the talk is now (of) Brent reaching $100 a barrel this year," he added.
International benchmark Brent crude traded at around $81.87 on Thursday, up around 0.65 percent, while U.S. West Texas Intermediate (WTI) stood at $72.32, more than 1 percent higher.
The U.S. is scheduled to impose targeted crude sanctions against OPEC's third-largest oil producer in just five weeks' time. And the sanctions are widely expected to have an immediate impact on Iran's oil exports, although estimates of exactly how much of the country's oil could disappear from November 4 vary widely.
Some energy market analysts expect around 500,000 barrels per day (bpd) to disappear once U.S. sanctions against Iran come into force, while others have warned as much as 2 million bpd could come offline over the coming months.
At its 2018 peak earlier this summer, Iran exported around 2.7 million bpd of crude oil — that's the equivalent to almost 3 percent of daily global consumption.
Meanwhile, OPEC kingpin Saudi Arabia is thought to be prepared to quietly add extra oil to the market to offset a drop in Iranian crude production.
The Middle-East dominated oil cartel has little spare capacity to make up for any drop in Iran's crude exports, but sources confirmed to CNBC Thursday that Riyadh is now ready to put as much as 550,000 additional bpd onto the market.
This increased crude supply would be reliant on demand, OPEC insiders told CNBC, although if market demand is apparent, supply would grow accordingly.
"The lack of spare capacity will be the dominant market narrative over the coming months as OPEC seeks ways to mitigate losses in supply," Michael Tran, commodity strategist at RBC Capital Markets, said in a research note published Wednesday.
"While our long held, structurally bullish outlook remains tactfully in place, the pace of the supply outages may present further upside risk to our view."