Citigroup analysts raised their forecast for oil prices for this year and next due to rising demand and the potential for supply losses from Venezuela and Iran.

Even as they raised their target, the Citi analysts explained the cross currents in the market and said they expect prices to be lower in 2019 than 2018 because of more supply coming to the market.

The analysts raised their 2018 forecast for Brent crude by $5 to $6 per barrel, to an average $65 per barrel, and they raised 2019 by the same amount, taking it to $55 per barrel. Brent futures were trading at $71.73 per barrel Monday. They also said they are boosting their forecast based on improving demand.

The strategists said they expected high volatility in oil prices to continue, due to the push-pull of geopolitical and policy risks.

Oil could be supported by the potential for more hawkish U.S. foreign policy from President 's new team, which could escalate tensions around both Iran and North Korea. The poor relationship between Russia and the West is also causing uncertainty in the oil market.

While geopolitical worries drive up prices, the market is also concerned about the potential negative impact on the economy, and oil demand and prices, from Trump's trade positions.

The strategists said there does not seem to be a breakthrough ahead in the near term between the U.S. and China on trade and that could impact commodities in the second quarter, more than actual fundamentals.

"Most troubling for markets is that there is no sign that market turbulence will be coming to an end any time soon and global assets are likely to undergo an accelerated pace of risk on/risk off," the analysts noted.

"We still remain bearish versus futures for end-18 and 2019 due to an expected oil surplus mostly occurring in 2019 onwards," they wrote, noting oil inventories look flat in 2018 but then rise in 2019.

But they note there is a risk around the May 12 deadline for the U.S. to either sign sanction waivers or drop out of the Iran nuclear deal. The agreement was structured by the U.S., Europe and other countries to lift sanctions on Iran in exchange for it ending its nuclear program.

Trump has said he may pull out of the deal, and national security advisor John Bolton has said the U.S. should be proactive in ending the Iranian nuclear program. If the U.S. exits the deal, it could put sanctions back on Iranian oil and the Iranian financial sector.

"The risk to Iranian supply has a very wide spectrum of possibilities. Even if President Trump doesn't sign the May 12 sanctions waiver, the end result could be just a redirection of oil flows," the analysts noted, with about 200,000 barrels a day lost. However, if the nuclear deal collapses, there could be 1 million barrels a day of Iranian oil lost from the market.

The European Union opposes dropping the deal, and French President Emmanuel Macron visits Washington next week to discuss Europe's position, which has been to revise sunset and inspection provisions.

Venezuela is also a risk for the market, and its oil output has been significantly declining. There is a possibility that the U.S. could take sanctions against Venezuela, if President Nicolas Maduro proceeds with an election in May. Venezuela currently produces about 1.5 million barrels a day, down 180,000 barrels from January levels and 540,000 from the year earlier.

The Citigroup analysts said if the U.S. sanctions Venezuela, it is possible the sanctions would be phased in to limit oil shipments and impact the financial sector.

The U.S. would be more likely to limit than ban Venezuelan crude, the analysts said. A complete ban would impact 500,000 barrels a day and result in deep discounts for Venezuela's oil from other buyers.

The Citi analysts said while they forecast lower prices next year, they are even more bearish on U.S. oil prices than Brent, and they expect the spread between the international benchmark and U.S. West Texas Intermediate to expand.

WTI could be weaker because pipeline bottlenecks for oil from the Permian Basin in Texas and the Cushing, Oklahoma, storage facility are getting worse, and more oil is being shipped by more expensive trucks and rail.

"WTI has a double-whammy bearish outlook," they wrote. In 2019, there will be too much oil supply growth into next year from Canada, Brazil and elsewhere, along with the pipeline bottlenecks.

This could make that spread between Brent and WTI get even wider. The two are now trading about $5 apart in the futures market, but WTI could see as much as a $10 a barrel, or even $12, discount by the middle of next year.