JP Morgan Uncertain About Oil Market Endgame as Iran Conflict Continues

JP Morgan analysts have expressed uncertainty about the oil market's endgame as the US-Israeli war on Iran continues to disrupt global supplies. The bank notes that it has never before been unable to model the market's baseline view for such a prolonged period.

The conflict has led to significant supply losses, with around 10 million barrels per day already disrupted. Oil prices have climbed above $100 a barrel, with gasoline reaching $4.37 a gallon and US diesel prices hitting an all-time high of $6.31 a gallon heading into winter.

JP Morgan estimates Brent's fair value at around $90 a barrel for September, suggesting that markets are pricing in the risk of further supply losses. The bank attributes this to mounting risks across the Middle East, including threats to shipping through the Bab el-Mandeb Strait and recent attacks affecting Saudi export routes.

Despite these disruptions, oil prices have not risen as sharply as expected due to governments and consumers relying less on inventory drawdowns. Global inventories of crude and refined products have fallen by about 555 million barrels since the conflict began, which is around one-third of the decline the bank had projected earlier this year.

JP Morgan notes that global oil demand has run about 4.4 million barrels per day below year-ago levels, helping to offset supply losses. The bank also highlights that significant inventories remain available in countries such as China, Europe, Japan, and South Korea, providing a buffer against a prolonged disruption.

However, the bank cautions that if Middle East supply disruptions persist, oil prices could move higher later this year as inventories decline further and the market becomes increasingly dependent on demand destruction to maintain balance.