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The oil market is in a super cycle that will deliver even higher prices, according to economists at a major Canadian bank, a view that if correct could underpin the Canadian Dollar over coming weeks and months.

RBC Capital Markets says it holds a high conviction that oil prices are in the midst of a super cycle, underpinned by solid fundamentals.

"To be clear, geopolitical tensions help to ignite the bull view, but this thesis is purely fundamentally driven," says Michael Tran, Global Energy Strategist at RBC Capital.

Above: US Total Product Inventories.

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The call comes as oil prices retreat amongst some signs of easing tensions on the Ukraine-Russia border, following heightened fears that Russia would invade.

Given Russia accounts for about 30% of European oil supply any war would place significant constraints on global supply.

But crude oil prices have fallen back as tensions in Eastern Europe ease somewhat amidst reports that Russia has instructed some units back to base as they maintain a diplomatic solution to tensions is still possible.

"CAD is in a peculiar spot at the moment, as the spill-over of geopolitical tensions in Ukraine into the oil market means that the loonie is shielded from adverse global risk moves as tensions escalate, but cannot fully benefit from risk sentiment improvements if a diplomatic solution becomes tangible as that would weigh on crude prices," says Francesco Pesole, FX Strategist at ING.

But for RBC Capital, the oil market has undergone substantive structural changes that will underpin prices going forward.

"We could be early, but the major cornerstone of our thesis over the next year, or longer, assuming the macro economy holds, is that the oil cycle will price higher until it finds a level of demand destruction," says Tran.

"It simply does not get more bullish than that," he adds.

Above: US Crude Inventories.

Reference rates at publication:

GBP to CAD spot: 1.7220High street bank rates (indicative): 1.6618 - 1.6740Payment specialist rates (indicative: 1.7066 - 1.7135Find out about specialist rates and service, hereSet up an exchange rate alert, hereData shows that oil production accounts for about 5% of the total Canadian economy, however its influence on foreign exchange earnings and the currency is larger given its dominance of the country's trade basket and therefore foreign currency earner.

According to Statistics Canada the oil and gas industry accounts for nearly 20% of the country's export basket, the value of which rises as the price of oil and gas rises.

RBC Capital sees upside visibility for prices to flirt with $115/bbl or higher this summer, adding that this applies for any selected benchmark, including Brent, WTI and Western Canada Select.

"The bottom line is that when prices are moving in a direction as such, do not split hairs," says Tran. "This process is less about nailing the top tick and more about guiding on a directional basis."

Adam Cole, RBC Capital's Chief Currency Strategist, says the Canadian Dollar "is positively correlated to energy prices and we would expect any Ukraine-related dip to be bought into quickly as prices trend higher into the medium term."

WTI oil prices are currently at 90.89/bbl and Brent is at 92.62.

The Canadian Dollar to U.S. Dollar exchange rate is at 1.2714 while the Pound to Canadian Dollar exchange rate is at 1.7220.