JP Morgan Withdraws Oil Market Forecast, Citing 'No Clear Endgame' in Iran Conflict

JP Morgan has withdrawn its baseline forecast for the oil market, citing unprecedented uncertainty six months into the conflict involving Iran and its impact on global energy supplies. In a note to clients on Thursday, the bank stated it has "no clear endgame" for the current market dynamics, marking the first time it has lacked a clear baseline view since the conflict began.

Uncharted Territory

Analysts at the bank acknowledged that their previous assumptions no longer hold, as the conflict has crossed economic thresholds they believed the U.S. administration would avoid. "We simply don’t know how to model the endgame," the note stated, highlighting a lack of a clear exit strategy.

The uncertainty comes as oil prices have climbed above $100 a barrel, with Brent crude trading near $106. JP Morgan's analysis suggests Brent’s fair value is closer to $90 a barrel, implying markets are pricing in a substantial risk premium for further supply losses.

Demand Destruction Cushions Supply Shock

Despite an estimated 10 million barrels per day (bpd) of supply being disrupted, oil prices have been partially contained by a significant drop in global consumption. JP Morgan noted that the market has leaned more on demand destruction than on drawing down inventories to absorb the shock.

Key market dynamics highlighted by the bank include:

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• Global oil demand is running approximately 4.4 million bpd below year-ago levels.
• U.S. retail gasoline prices are at $4.37 a gallon, while diesel prices have hit an all-time high of $6.31 a gallon.
• Global crude and product inventories have fallen by 555 million barrels, only about one-third of the decline the bank had initially projected.

This dynamic has allowed the market to weather an "extraordinary supply disruption" without a more dramatic price surge, with Brent averaging $94 since the conflict started, according to the bank.

Lingering Risks and Divergent Outlooks

JP Morgan cautioned that the stability is fragile. Persistent supply disruptions in the Middle East could force prices higher later this year as inventory buffers in China, Europe, and Japan are depleted. The note pointed to mounting geopolitical risks, including threats to shipping through the Bab el-Mandeb Strait and attacks on Saudi and Russian energy infrastructure.

This uncertain outlook is reflected in conflicting forecasts from major energy bodies. The International Energy Agency (IEA) expects global supply and demand to fall further this year, while OPEC maintains its forecast for demand growth. For now, JP Morgan concluded there is "enough dry powder to keep prices contained—for now," but the long-term path remains highly unpredictable.