Oil Markets Struggle with Uncertainty as Iran War Continues to Escalate

JPMorgan, one of Wall Street's major players, has lost clarity on where oil prices are headed. The bank's analysts say they 'simply don't know how to model the endgame' of the Iran war, which erupted in February.

The conflict has crossed multiple economic thresholds that were initially thought to be non-negotiable by the US administration. As a result, JPMorgan can no longer provide a clear baseline view for oil markets. Oil prices have climbed above $100 a barrel, while inventories are at all-time lows.

JPMorgan estimates Brent's fair value at around $90 a barrel for September, which suggests markets are pricing in the risk of further supply losses beyond the estimated 10 million barrels per day already disrupted. The bank points to mounting risks across the Middle East, including threats to shipping through the Bab el-Mandeb Strait and recent attacks affecting Saudi export routes.

The uncertainty has not led to a sharp rise in oil prices because governments and consumers have relied less on inventory drawdowns. Global inventories of crude and refined products have fallen by about 555 million barrels since the conflict began, which is only around one-third of the decline the bank had projected earlier this year.