Key Takeaways
- JP Morgan states it no longer has a clear view for the oil market due to ongoing Iran war.
- Oil prices have risen above $100 a barrel, with diesel prices reaching an all-time high.
- Global inventories remain low, but demand has been below year-ago levels, partially offsetting supply losses.
JP Morgan has stated that the ongoing war involving Iran has made it impossible to forecast the oil market with any certainty, according to a note issued on Thursday.
Analysts at the bank noted that the initial expectations of the US administration to avoid crossing certain economic thresholds during the war have now been surpassed, without a clear exit strategy.
Oil prices have surged to over $100 a barrel, while US gasoline prices have reached $4.37 a gallon, and diesel prices have hit an all-time high of $6.31 a gallon, ahead of the winter season when demand typically increases.
Despite the significant supply disruptions, oil prices have not risen as sharply as expected, due to governments and consumers relying less on inventory drawdowns.
Global inventories of crude and refined products have fallen by about 555 million barrels since the war began, roughly one-third of the decline the bank had previously projected.
Global oil demand has been about 4.4 million barrels per day below year-ago levels, helping to offset some of the supply losses.
JP Morgan estimated Brent crude’s fair value at around $90 a barrel for September, compared with market prices near $106, indicating that markets are pricing in the risk of additional supply losses.
The bank highlighted growing risks across the Middle East, including threats to shipping through the Bab el Mandeb Strait and attacks affecting Saudi oil export routes.
It also pointed to continued attacks on Russian refining infrastructure and Ukrainian cities as further risks to global energy supplies.
Despite the scale of the supply disruptions, the bank warned that oil prices could move higher later this year if supply disruptions in the Middle East continue.
Further inventory declines could leave the market increasingly dependent on lower demand to maintain balance, with significant inventories remaining available in China, Europe, Japan, and South Korea, providing some protection against a prolonged disruption.
