Foreign tourists in veils seen on a passenger boat with the Iranian flag amass in the waters of the Strait of Hormuz on May 2, 2017 near Hormuz Island, Iran. An oil tanker is seen on the move in the background.

The U.S. is demanding zero purchases of Iranian oil by November, and if that were possible, oil could spike above $120 per barrel, given global crude supplies, says Bank of America Merrill Lynch.

"In our view, a complete cutoff of Iran exports would be very hard to manage and likely result in an oil price spike above $120/bbl. For now, the uncertainty around US government policy is leading to lower exports and an increase in Iranian oil in floating storage," wrote Francisco Blanch, BofAML head of global commodities and derivatives research.

Analysts are skeptical the U.S. can keep even half the Iranian exports of about 2.4 million barrels a day from the market, but some have raised their expectations since U.S. officials began talking up their goal of removing all Iranian exports. They have also warned of potential price spikes if there are any more unexpected production outages in the world.

The U.S. is reimposing sanctions on Iran, after President Donald Trump withdrew the U.S. from the Iran nuclear agreement in May. The agreement was between Iran and six countries, who agreed Iran would end its nuclear program in exchange for an end to sanctions. But Trump said the agreement was unfair and would have allowed Iran to return to its program.

Blanch, in a note, said a complete cutoff of Iranian crude exports would be particularly painful at this point. He expects the U.S. to achieve a reduction of only 500,000 barrels a day because of a shortfall in global supply. He added that 1.2 million Iranian barrels a day were off the market the last time Iran was sanctioned, but that was possible because U.S. shale drilling was growing at a rapid pace, demand was lower and Libyan output had come back to the market to make up for some of the Iranian output.

Now there are some unexpected outages, including Libya, and Venezuela's oil industry is in decline. "In contrast, we now project global oil supply and demand balances to remain in a structural deficit for most of the next six quarters," he wrote. West Texas Intermediate crude was trading just under $74 per barrel Friday, and Brent was at about $77 per barrel.

OPEC and Russia and other producers last month agreed to add 1 million barrels to the market. But Trump has also asked Saudi Arabia to tap its 2 million barrel spare capacity and add more oil to the market.

Blanch is skeptical that the kingdom could pump 12 million or more barrels a day.

"When we look at Saudi production and exports going back to 1970, we can observe that the highest annual oil production recorded was 10.4mn b/d in 2016, and Saudi has never produced more than 10.6mn b/d of oil on average over a single month," he wrote. "Importantly, the last episode of rising oil prices has led to significant draws in Saudi oil inventories. So it appears the oil market has little confidence that Saudi can manage to reach and maintain 11mn b/d and raise exports proportionally without continuing to draw down its inventories further."

