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Sept 17 (Reuters) – JP Morgan said on Thursday that it does not have a clear baseline view for oil markets for the first time since the start of the US-Israeli war on Iran.
“We simply don’t know how to model the endgame,” analysts at the bank noted.
The note flagged that at the beginning of the conflict, JP Morgan had assumed there were some economic thresholds that the U.S. administration would not cross, but six months into the conflict, many of those lines have been crossed with no clear exit strategy in view.
The bank noted that oil prices have climbed above $100 a barrel with gasoline at $4.37 a gallon. It also noted that US diesel prices have hit an all-time high of $6.31 a gallon heading into winter, the period of peak seasonal demand, while inventories sit at all-time lows.
JP Morgan estimated Brent’s fair value at around $90 a barrel for September, compared with current prices near $106, suggesting markets are pricing in the risk of further supply losses beyond the estimated 10 million barrels per day already disrupted.
The note 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. It also noted continued attacks on Russian refining infrastructure and Ukrainian cities, underscoring persistent geopolitical risks to global energy supplies.
However, despite the scale of supply disruptions, oil prices have not risen as sharply as expected because governments and consumers have relied less on inventory drawdowns, JP Morgan said.
Global inventories of crude and refined products have fallen by about 555 million barrels since the conflict began, only around one-third of the decline the bank had projected earlier this year.
At the same time, global oil demand has run about 4.4 million barrels per day below year-ago levels, helping offset supply losses, the bank said.
“By leaning much more on demand destruction and much less on stock draws, the market has been able to absorb an extraordinary supply disruption without a sustained rise in crude prices. Since the conflict began, Brent has averaged just $94,” it noted.
Global oil supply and demand look set to fall further than previously expected this year, the International Energy Agency said last week.
By contrast, producer group OPEC still expects world oil demand to grow this year, even though it lowered its forecast for a fifth straight month. OPEC sees demand rising by 380,000 bpd in 2026.
The bank said significant inventories remain available, particularly in China, Europe, Japan and South Korea, providing a buffer against a prolonged disruption. That could limit the need for crude prices to rise substantially in the near term.
Still, it cautioned 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.
“In short, there is still enough dry powder to keep prices contained—for now,” the bank said.
Reporting by Anjana Anil in Bengaluru; Editing by David Gregorio
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