JPMorgan Chase & Co.'s oil analysts, including Natasha Kaneva, stated in a note that they are unable to predict the market outlook more than six months after the start of the Iran war, echoing sentiments privately expressed by many traders. For the first time since the conflict began, JPMorgan lacks a clear baseline view for oil markets, struggling to model an endgame. They had initially assumed certain economic thresholds, like oil prices above $100 a barrel, gasoline nearing $5 a gallon, and surging Treasury yields, would compel the US administration to find a resolution.
However, these "red lines" have already been crossed. Oil has risen above $100 a barrel, with current prices near $106, while Brent's fair value was estimated at around $90 a barrel for September. Gasoline prices reached $4.37 a gallon, and US diesel prices hit a record $6.31 a gallon heading into winter, with inventories at all-time lows. The 10-year Treasury yield also crossed 5%. Despite these developments, the exit strategy from the conflict remains unclear, and the assumption that supply disruptions would be temporary is becoming increasingly difficult to sustain.
The ongoing conflict has led to an estimated 10 million barrels per day of oil supply disruption. The current market pricing suggests an additional risk of approximately 4 million barrels per day in further supply losses. However, oil prices have not escalated as sharply as expected, partly due to weaker global demand, which has averaged about 4.4 million barrels per day below year-earlier levels, and a less severe drawdown in inventories. Global crude and refined-product inventories have declined by about 555 million barrels, which is only about one-third of the 1.6 billion barrels JPMorgan had originally projected. Significant inventories still remain in China, Europe, Japan, and South Korea, providing a potential buffer.
