JPMorgan Abandons Clear Oil Outlook, Citing 'No Endgame' in Mideast Conflict

JPMorgan said Thursday it no longer has a clear baseline view for oil markets for the first time since the start of the US-Iran conflict, a sign of profound uncertainty among top commodity analysts. In a note to clients, the bank's analysts stated, "We simply don’t know how to model the endgame."

A Market Beyond Thresholds

JPMorgan highlighted that after six months of conflict, many economic thresholds the bank assumed the U.S. would not cross have been breached with no clear exit strategy. The note pointed to oil prices climbing above $100 a barrel, with U.S. gasoline at $4.37 a gallon and diesel prices hitting an all-time high of $6.31 a gallon ahead of the peak winter demand season.

The bank estimates the fair value for Brent crude at around $90 a barrel for September. However, with current prices near $106, it suggests the market is pricing in a substantial risk premium for further supply losses beyond the estimated 10 million barrels per day already disrupted.

Demand Destruction Caps Prices

Despite massive supply disruptions and mounting risks to shipping routes like the Bab el-Mandeb Strait, oil prices have not risen as sharply as some models predicted. JPMorgan attributes this to significant demand destruction, which has been a more powerful balancing force than inventory drawdowns.

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Key points from the bank's analysis include:

• Global oil demand is running approximately 4.4 million barrels per day below year-ago levels.
• Global crude and product inventories have fallen by 555 million barrels, only about one-third of the decline JPMorgan had previously projected.
• This combination has allowed the market to absorb the supply shock, with Brent averaging just $94 a barrel since the conflict began.

An Uncertain Path Forward

While significant inventories in China, Europe, Japan, and South Korea provide a near-term buffer, JPMorgan cautioned that this stability may not last. The bank warned that if Middle East supply disruptions persist, oil prices could move higher later this year as inventories decline and the market becomes more dependent on demand destruction to balance.

"In short, there is still enough dry powder to keep prices contained—for now," the bank concluded, underscoring the fragile state of global energy markets amid persistent geopolitical threats.