JPMorgan's commodities strategists, led by Natasha Kaneva, are struggling to predict the future of energy markets due to the ongoing and complex war in Iran. For the first time since the conflict began, they lack a "baseline view" and cannot effectively model the endgame. This uncertainty stems from the fact that previously assumed "economic red lines" for the U.S. administration, such as rising gasoline prices and inflation, have been crossed without a clear exit strategy for the conflict.
The Strait of Hormuz, a critical chokepoint for global energy flows, remains largely closed, with daily vessel transits significantly below pre-war levels. Despite initial forecasts of a rapid depletion of global oil stocks, the market has primarily responded by curbing demand, which is down over 4 million barrels per day compared to last year. This demand destruction, rather than significant stock draws, has prevented a sustained surge in crude prices.
Oil prices for both Brent and WTI benchmarks are holding around $100 per barrel. U.S. gasoline prices are consistently above $4 per gallon, and diesel prices have hit all-time highs above $6 per gallon. The 10-year Treasury yield has surpassed 5%. While U.S. producers are increasing oil and natural gas output to record levels, concerns remain about the inelasticity of global oil demand from sectors like military and manufacturing, and dwindling U.S. government and commercial stocks. China's reaccelerating demand for crude, driven by lucrative margins for refined products, further complicates the outlook.
The JPMorgan strategists warn that the assumption of temporary Middle East disruptions is becoming unsustainable. While current market conditions suggest there's "enough dry powder to keep prices contained—for now," the overall picture remains precarious. A de-escalation scenario where the Strait reopens could see oil fall to $70-$80 per barrel, but a prolonged conflict with partial re-opening could keep prices near $100, impacting UK and Eurozone inflation more significantly than the U.S. An escalation driving prices above $150 per barrel could even trigger recessions in the UK and Eurozone.
