Key facts
- JPMorgan analysts stated they do not have a clear baseline view for oil markets for the first time since the start of the US-Israeli war on Iran.
- The bank noted that oil prices have climbed above $100 a barrel with gasoline at $4.37 a gallon.
- US diesel prices have hit an all-time high of $6.31 a gallon.
- JP Morgan estimated Brent's fair value at around $90 a barrel for September.
- Global inventories of crude and refined products have fallen by about 555 million barrels since the conflict began.
- Global oil demand has run about 4.4 million barrels per day below year-ago levels since the conflict began.
JPMorgan analysts stated on Thursday that they do not have a clear baseline view for oil markets for the first time since the start of the US-Israeli war on Iran, indicating uncertainty about how to model the conflict's endgame. The bank noted that six months into the conflict, many economic thresholds assumed to be uncrossable by the U.S. administration have been surpassed without a clear exit strategy.
Oil prices have climbed above $100 a barrel, with gasoline at $4.37 a gallon and US diesel prices hitting an all-time high of $6.31 a gallon heading into winter, a period of peak seasonal demand, while inventories are at all-time lows. JPMorgan estimated Brent's fair value at around $90 a barrel for September, suggesting markets are pricing in the risk of further supply losses beyond the estimated 10 million barrels per day already disrupted.
The bank pointed to mounting risks across the Middle East, including threats to shipping through the Bab el-Mandeb Strait and recent attacks affecting Saudi export routes, as well as continued attacks on Russian refining infrastructure and Ukrainian cities. Despite these disruptions, oil prices have not risen as sharply as expected because governments and consumers have relied less on inventory drawdowns, with global inventories falling by about 555 million barrels since the conflict began, only one-third of the bank's earlier projection. Global oil demand has also run about 4.4 million barrels per day below year-ago levels, helping offset supply losses. JPMorgan noted that Brent has averaged just $94 since the conflict began.
While the International Energy Agency expects global oil supply and demand to fall further than previously anticipated this year, producer group OPEC still forecasts world oil demand growth, albeit lowered for the fifth consecutive month. JPMorgan also noted that significant inventories remain available in China, Europe, Japan, and South Korea, which could buffer against prolonged disruptions and limit near-term price increases. However, the bank cautioned that persistent Middle East supply disruptions could lead to higher oil prices later this year as inventories decline and the market becomes more dependent on demand destruction.