Even JPMorgan can’t predict oil’s next move as Iran war crosses more red lines

Let alone traders, even Wall Street major JPMorgan has lost clarity on where oil prices are headed. For the first time since the Iran war erupted in February, the bank no longer has a clear baseline view for oil markets as escalating tensions fuel fears of an already worsening supply shock.

“We simply don't know how to model the endgame,” analysts at the bank said, highlighting the uncertainty surrounding how the conflict could ultimately unfold. At the start of the conflict, JPMorgan had assumed there were certain economic thresholds that the US administration would not cross. But six months into the war, many of those lines have been crossed, and there is still no clear exit strategy in sight, the bank said.

The uncertainty comes as oil prices have climbed above $100 a barrel, while inventories are at all-time lows.

What is JPMorgan saying?

JPMorgan estimates Brent’s fair value at around $90 a barrel for September, compared with current prices near $106. That gap suggests markets are pricing in the risk of further supply losses beyond the estimated 10 million barrels per day already disrupted.

The bank pointed to mounting risks across the Middle East, including threats to shipping through the Bab el-Mandeb Strait and recent attacks affecting Saudi export routes. It also highlighted continued attacks on Russian refining infrastructure and Ukrainian cities, underscoring the persistent geopolitical risks facing global energy supplies.

Yet despite the scale of the supply disruption, oil prices have not risen as sharply as might have been expected because governments and consumers have relied less on inventory drawdowns, JPMorgan said.

Global inventories of crude and refined products have fallen by about 555 million barrels since the conflict began, only around one-third of the decline the bank had projected earlier this year. At the same time, global oil demand has been running about 4.4 million barrels per day below year-ago levels, helping offset the loss of supply, the bank said.

“By leaning much more on demand destruction and much less on stock draws, the market has been able to absorb an extraordinary supply disruption without a sustained rise in crude prices. Since the conflict began, Brent has averaged just $94,” it said.

JPMorgan said significant inventories are still available, particularly in China, Europe, Japan and South Korea, providing a buffer against a prolonged disruption. That could limit the need for crude prices to rise substantially in the near term.

The bank, however, cautioned that a prolonged disruption to Middle East supplies could push oil prices higher later this year as inventories decline further and the market becomes increasingly dependent on demand destruction to maintain balance. “In short, there is still enough dry powder to keep prices contained, for now,” the bank said.

Oil price today

Oil prices fell over a per cent on Friday, extending losses for the third straight session, although both benchmarks remained above $100 a barrel. Hopes that alternative routes could help Middle Eastern barrels reach global markets outweighed concerns over fresh strikes between Saudi Arabia and Yemen's Houthis.

Markets largely looked past the latest threats to supply, even as Saudi Arabia and Yemen's Iran-backed Houthis exchanged fresh strikes across their border on Thursday, widening the conflict's regional footprint.

Brent crude futures fell $1.01, or 1.04%, to $103.70 a barrel, while US West Texas Intermediate futures declined $0.94, or 0.92%, to $101 a barrel. Both benchmarks had ended about 1% lower on Thursday.

Oil prices had risen to around four-month highs earlier this week after crude loadings at Saudi Arabia's Red Sea export hub of Yanbu had been suspended. Riyadh had also cancelled some deliveries to Europe after an attack last week damaged its East-West pipeline.

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