Iran War Has Made Oil Impossible to Forecast: JP Morgan

JP Morgan has declared that the ongoing war in Iran has rendered oil pricing impossible to accurately predict, with supply risks escalating across the Middle East and other leading oil-producing regions. Analysts at the bank stated they are unable to model the situation's conclusion. Initially, JP Morgan anticipated US authorities would refrain from breaching specific economic limits during the conflict.

However, multiple thresholds have now been surpassed without a defined resolution. Oil prices have surged past $100 per barrel, while US gasoline prices have ascended to $4.37 per gallon, and diesel prices have reached their highest point of $6.31 per gallon ahead of winter's peak demand period. Brent crude fair value is estimated at approximately $90 per barrel for September, whereas market prices are near $106.

This discrepancy indicates that markets are factoring in the likelihood of additional supply deficits beyond the already disrupted 10 million barrels per day. Growing risks are highlighted across the Middle East, encompassing threats to shipping through the Bab el Mandeb Strait and attacks impacting Saudi oil export routes. The bank also accounts for ongoing strikes on Russian refining infrastructure and Ukrainian cities as further threats to global energy supplies.

Despite the extent of supply disruptions, oil prices have not escalated as anticipated due to governments and consumers relying less on inventory reductions. Global inventories of crude and refined products have dwindled by around 555 million barrels since the war commenced, representing roughly a third of the decline the bank had previously anticipated.

Meanwhile, global oil demand stands about 4.4 million barrels per day lower compared to the previous year, partially offsetting some of the supply losses. JP Morgan reported that Brent averaged around $94 per barrel since the onset of the war. The bank noted that substantial inventories are still accessible in China, Europe, Japan, and South Korea, offering some protection against a prolonged disruption.

However, JP Morgan cautioned that oil prices may rise further this year if Middle East supply interruptions persist. Additional inventory reductions could leave the market increasingly reliant on lower demand to maintain equilibrium. JP Morgan asserted that ample "dry powder" remains in global inventories to keep oil prices restrained for now, yet the market confronts heightened volatility if disruptions endure.