'We simply don't know' - JP Morgan struggling to forecast oil prices due to Trump's war with Iran

JP Morgan, a leading investment banking firm, is finding it difficult to forecast the impact of the US-Iran war on oil prices. In a rare note to investors, the bank admitted that they "simply don't know how to model the endgame." The bank had initially assumed that certain economic red lines, such as oil prices surpassing $100 a barrel, inflation reaching 4%, gasoline going over $5 a gallon, and 10-year government borrowing rates hitting 5%, would prevent a deal from being struck.

However, those red lines have been crossed, and the bank remains uncertain about the exit strategy. Despite gasoline prices staying below $5 and inflation not hitting 4%, oil prices have surged above $100 in recent weeks, and the yield on US government bonds has increased, reflecting the rising cost of borrowing. JP Morgan's commodities research team stated that they have no clear baseline view of the situation and admitted that the endgame is unclear.

The bank estimated that the fair value for oil in September would be around $90 a barrel, but acknowledged that the market is pricing in the risk of more disruption to oil supply. The conflict between Iran, Yemen's Houthi rebels, and Russia and Ukraine continues to pose risks to oil supply, making it increasingly challenging to sustain the assumption that global oil supply disruption is temporary.