A worker on a an oil drill near New Town, North Dakota. Daniel Acker | Bloomberg | Getty Images

The prospect of continued strength in the U.S. dollar over the coming months should constitute an even greater concern to bullish oil traders than an escalating trade war between the world's two largest economies, an analyst told CNBC on Monday. Investors are currently seen weighing bullish factors that include potential supply disruptions to Iranian crude exports against more bearish indicators, such as broad greenback strength and a ramp-up in production by OPEC and its allied partners. "There are lots of variables in the oil market, the most important of which is Iran. If 1 million barrels per day or more of Iranian exports go AWOL, the current fragile supply-demand balance will be upended — potentially sending oil prices above the May peak," Tamas Varga, senior analyst at PVM oil associates, said in a research note published Monday. "The most obvious thing that could change this bullish view is not the U.S.-China trade war, but the strong dollar that, if (it) lasts, will put (an) almost unbearable burden on consuming countries," he added.

'Risk to the demand picture'

International benchmark Brent crude traded at around $72.80 on Friday morning, little changed from the previous session, while U.S. West Texas Intermediate (WTI) stood at $67.43, down around 0.3 percent. Meanwhile, the U.S. dollar climbed to a 13-month high against a basket of six major currencies on Monday, amid renewed financial turmoil in Turkey. The greenback edged around 0.1 percent higher during early afternoon deals, trading at 96.460 against major peers. Typically, crude futures trade inversely to the greenback. A stronger dollar makes oil more expensive to much of the world, so oil prices tend to fall as the dollar rises.

To be sure, recent strength in the U.S. currency has fueled a cautious mood in oil markets. Yet, bullish sentiment found some support from expectations that looming U.S. sanctions against Iran could significantly hamper its crude exports. "It feels like self-harm at the moment in the oil market," Paul Hickin, EMEA oil analyst at S&P Global Platts, told CNBC's "Squawk Box Europe" on Monday. "With these risks from sanctions, from the escalating trade war with China and even from smaller local things like with Turkey, it all feeds into a risk to the demand picture further out," he added.

Iran sanctions