Supply picture signals limited upside for oil prices, analysts say

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As fears over Syria eased on Friday and oil prices edged back from recent highs, most industry watchers think further upside is limited with one saying it could be time to take profits.

According to Richard Martin, managing director at IMA Asia, the supply picture for crude oil remains intact, which means the rally in prices is unlikely sustainable.

"We've got very big stockpiles in the U.S. that have doubled in the last few years, so I'm not so worried about the outlook for oil and I see it drifting a bit lower," said Martin, referring to how a more energy independent U.S. means its supply could help offset any disruptions in the Middle East.

"The blip up we have seen in oil prices will be short term," he added.

(Read more: Syria conflict and the oil market: Worst and best scenarios)

Panic over whether the U.S. would launch a military strike in reaction to Syria's use of chemical weapons on its own civilians sent Brent crude futures to highs of $117.34 a barrel this week, levels not seen since February. U.S. crude prices also climbed to over $112 a barrel, a high not seen since February 2011.

But on Thursday, a vote in the U.K. parliament vetoed military action against Syria, in a move many saw as likely delaying any strike, helping to ease market anxiety. As a result, prices have eased back over the past two days with Brent slipping below $115 a barrel and U.S. crude falling below $108 a barrel on Friday.

Bill Smead, CIO and CEO of Smead Asset Management, said once investors realize that the developments in the Middle East are not likely to be as important for the global supply picture in the future, the price of oil should come down.

"Whenever we get past this idea that these small marginal countries in the Middle East are going to ruin the oil business, there is going to be a huge catch-up decline in the price of oil based on the supply and demand fundamentals," he said. "Without supply fears, oil is a $70 per barrel business," he said.

(Read more: Phew! Futures indicate that the oil spike won't last)

Jonathan Barratt, CEO of Barratt's Bulletin agreed that actual fundamentals show the price of oil should be much lower. He forecast Brent to fall to $90 a barrel and WTI to $85 by the end of the year.

"The old school rhetoric is at play, with the Middle Eastern tensions causing irrational movements in oil prices... [But] If you look at the U.S., it imports between 40-45 percent of its oil needs nowadays, down from 55 percent a few years ago. And of this, less than one third comes from the gulf and is falling at a rampant rate," added Barratt.

Warren Gilman, CEO of CEF Holdings, told CNBC now was a good time for oil investors to take profits.

(Read more: Trust me: No one wants to go home short crude oil)

"Generally speaking it's probably a good time to be selling this rally in oil even though there is potential for a little pop to the upside," said Gilman.

"Looking at it from 20,000 feet there's nothing like a great rally to sell into and take some profits," he added.

—By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie