"It is a much more difficult thing at the moment for the US to induce other countries to reduce their imports from Iran than was the case in 2012," said Edward Morse, Global Head-Commodities, Citi Research.

Talking on China factor in oil, he said, "Iran have been selling oil into China and hedging it on the new IME exchange in Shanghai and Iran is doing this in renminbi."

Watch: Average oil price will remain above $70 per barrel, says Citi's Morse

Edited Excerpts:

How much more you can see a rise in crude prices? We have this long awaited factor that shale oil will come in at some price and provide a ceiling but will that happen now?

We don’t really know how much oil will be taken off the market or when that will happen. We are still awaiting more details on the regulations, on the waiver itself. Although, the waiver has not been given. There has to be a waiver because the US government has to negotiate with offtakers of Iranian crude and try to see whatever a significant amount of oil is to be taken off the market.

So, there has been no diplomacy today. We don’t know how much it is, is it going to be a low order of magnitude like 200,000 barrels a day, which 100 million barrel a day market isn’t significant or will it be as much as a million barrels a day, we don’t know the answer to that yet. So yes, I do think it is going to take a tight market and an already tight market, it will make it tighter at least through summer.

We were just discussing a while back as to how with this decision as well as with the expected nuclear decision after the Korean talks come to an end, the bedrock of global nuclear order perhaps could be at risk and what is your own view, what kind of ramifications do you think all of this could have on global commodities including crude going ahead?

It doesn’t have much of an impact on commodities other than crude at the moment. We don’t know what the negotiating ultimate position of the US government may be. But to be sure, there is a very tight market in oil and the tight market has come from Organization of the Petroleum Exporting Countries (OPEC) led by Saudi Arabia and Russia. We know from statements of the US government has made, that they have had conversations with producers, presumably those of Saudi Arabia, Kuwait and the UAE on bringing oil back into the market.

There has been very limited information coming out of any of those countries but it would be surprising if there won't be pressure from the US to have a significant amount of 1.8 million barrels a day, taken off the market brought back in and that 1.8 million barrels a day that producers have taken off the market is a significantly larger amount than whatever we can project would be a reduction in Iranian exports. So, it is a wait and see attitude at the moment and we need to see what the OPEC countries are going to do with respect to their current production cut agreement.

Do you think the entire world will fall in line with the US demand for sanctions and if they don’t, can there be some countries which will buy Iranian oil and therefore the arithmetic of the pricing could be different?

The arithmetic is difficult to calculate at the moment. We know that Iran has been toying with pressing oil exports in currencies other than the US dollar. They certainly have with respect to the Europe but it looks like they have been selling oil into China and hedging it on the new IME exchange in Shanghai and Iran is doing this in renminbi. So, this is certainly an opening for clearing of oil at least for China on a petroyuan basis rather than a petrodollar basis.

Certainly, the US does not have the wherewithal to prevent other countries from importing crude from Iran or making payments in currencies other than the US dollar and there will be certainly leakage. It is a much more difficult thing at the moment for the US to induce other countries to reduce their imports from Iran than was the case in 2012.

What are we looking at in terms of a price range? Are we already at the highs because the worst has gotten priced in?

I don’t think so. It depends on what the OPEC countries do in terms of their production cut. From our perspective, as we measure inventories in the world, partly because of the winter that the northern hemisphere went through this past winter, which raised oil demand significantly higher than had been expected. And partly because some OPEC countries or a number of OPEC countries are seeing their production falling relatively quickly, those include Israel and then potentially Nigeria and Libya, where the market has gotten very tight.

Do you get a sense that it will continue to stay above $75 a barrel?

We are moving into a season of higher refinery demand for crude oil and that should under these circumstances, in our judgement push average prices up to the high $70 per barrel level in terms of Brent which means oil pricing at times in Q3 and Q4 this year above $80 per barrel unless the OPEC-plus countries decide to put more oil in the market.

Eventually, the high prices are stimulating a significant amount of new oil production. We at Citi expect that the US, Canada and Brazil combined will be adding from the beginning to the end of the year as much as 2.5 million barrels a day in the market, which is a significant amount.

It is above the level of demand growth and we should see the decline in global inventory that has been in the market for the past 15 months or so, changing into now inventory change and eventually in inventory bills.

So, even if OPEC doesn’t bring more oil into the market, the stimulation of new production will by a year from now, result in inventory bill with the result - we don’t know what its result will be, OPEC-plus bring more oil in the market but that will help to balance the market in a better way.