JP Morgan’s own numbers point to a market pricing meaningfully more risk than the bank’s fair value model can justify, with Brent trading near $106 against an estimated fair value of around $90 for September. That roughly $16 gap reflects the market’s own assessment of further supply-loss risk beyond the estimated 10 million barrels per day already disrupted by the war, rather than a mispricing the bank expects to close quickly.
Record diesel prices heading into peak winter demand, alongside gasoline near multi-year highs, point to refined product markets tightening faster than crude itself, a dynamic traders will watch closely as inventories are drawn down further. With JP Morgan flagging genuine model uncertainty rather than a directional call, the note is likely to be read as a signal to keep hedging skewed toward upside tail risk rather than as a trade recommendation in either direction.
—
JP Morgan admits it can no longer model how the Iran oil crisis ends. An admission of this kind carries particular weight coming from JP Morgan specifically. It is a bank with the analytical resources to draw on outside expertise when its own models fall short, and for it to say plainly that it cannot map an endgame after six months of conflict is a notable departure from the confident house views banks typically project, even in volatile markets.
Summary:
- JP Morgan told Reuters it has no clear baseline view for oil markets for the first time since the US-Israeli war on Iran began, saying it does not know how to model the endgame
- The bank estimates Brent’s fair value near $90 a barrel for September, well below prices trading around $106, implying markets are pricing further supply-loss risk beyond an estimated 10 million barrels per day already disrupted
- US gasoline is around $4.35 a gallon and diesel has hit a record near $6.30 a gallon heading into peak winter demand, with inventories at all-time lows
- Global crude and product inventories have fallen by about 555 million barrels since the war began, only around a third of what JP Morgan had projected, as demand running roughly 4.4 million barrels per day below year-ago levels has absorbed much of the supply loss
- The bank flagged mounting risks including threats to Bab el-Mandeb shipping, attacks on Saudi export routes, and continued strikes on Russian refining infrastructure and Ukrainian cities
- JP Morgan said sizeable inventories in China, Europe, Japan and South Korea still provide a buffer, but warned prices could move higher later this year if disruptions persist and the market leans further on demand destruction
JP Morgan told Reuters on Thursday that it no longer has a clear baseline view for oil markets, marking the first time the bank has said so since the US-Israeli war on Iran began. Analysts at the bank said they no longer know how to model the endgame, noting that six months into the conflict, economic thresholds it once assumed the US administration would not cross have since been crossed, with no clear exit strategy in sight.
The bank pointed to a widening gap between its own valuation and where the market is trading. It estimates Brent’s fair value at around $90 a barrel for September, compared with spot prices near $106, a difference it says reflects the market pricing in further supply losses on top of the roughly 10 million barrels per day already disrupted by the conflict. On the ground, US gasoline is running around $4.35 a gallon, while diesel has climbed to a record near $6.30 a gallon just as peak winter demand approaches, with inventories at historic lows.
Even so, JP Morgan said prices have not risen as sharply as the scale of disruption might suggest, because the market has leaned more heavily on falling demand than on running down stockpiles. Global crude and product inventories have dropped by about 555 million barrels since the war began, only around a third of the decline the bank had originally projected, while global oil demand has run about 4.4 million barrels per day below year-ago levels. Brent has averaged just $94 over the course of the conflict as a result.
The bank flagged a widening set of risks beyond the Strait of Hormuz (that’s simmering away), including threats to shipping through the Bab el-Mandeb Strait, recent attacks affecting Saudi Arabia’s export routes, and ongoing strikes on Russian refining infrastructure and Ukrainian cities. The International Energy Agency said last week that global oil supply and demand both look set to fall further than previously expected this year, while OPEC, though trimming its own forecast for a fifth consecutive month, still expects world oil demand to grow by 380,000 barrels per day in 2026.
JP Morgan said meaningful inventory buffers remain in China, Europe, Japan and South Korea, which could limit how far prices need to rise in the near term. But it cautioned that if Middle East disruptions persist, prices could move higher later in the year as inventories are drawn down further and the market becomes increasingly reliant on demand destruction to stay balanced.
That a bank of JP Morgan’s standing, one with the resources to bring in outside expertise rather than rely solely on its own modelling, is now saying openly that it cannot chart a path forward says as much about the state of this conflict as any of the price data above.
Its seems to hinge on one guy’s mood swings.
This article was written by Eamonn Sheridan at investinglive.com.