JP Morgan has abandoned its baseline view of the Iran war, telling clients it can no longer model the endgame as the conflict enters its seventh month. According to Reuters, Natasha Kaneva, the bank's head of global commodities strategy, noted that many of the economic redlines it once trusted have been crossed. The bank had assumed that pain in oil, fuel, and bond markets would push President Donald Trump to strike a deal to reopen the Strait of Hormuz, with several thresholds in mind including oil above $100, gasoline close to $5 a gallon, and the 10-year Treasury yield above 5%. However, the 10-year Treasury yield crossed 5% this week, its highest in three years, while US diesel hit a record $6.31 a gallon with inventories at all-time lows. As Kaneva stated, "For the first time since the start of the Iran conflict, we don't have a baseline view. We simply don't know how to model the endgame."
Several shipping tracking companies are reporting improved oil flows from the South side of the Strait of Hormuz, which comes under Omani control, according to Mirae Asset Sharekhan analysis. The dated Brent is quoted at $130/bbl and futures are up almost 80% this year, though the benchmark remains below its wartime peak of just above $126 a barrel reached in April. Nearly 6-9 million barrels of oil are being routed through the strait with the help of the US Navy, while Saudi crude exports are trending higher after a significant pickup from the Kingdom's Eastern terminals as exporters are gradually learning to move barrels through a disrupted Hormuz. However, crude oil stored on tankers that have been stationary for at least seven days fell 23% week-on-week to 76.39 million bbl in the week ended September 11, indicating a loosening grip of Iran.
Despite the scale of supply disruption, oil prices have not risen as sharply as might have been expected because governments and consumers have relied less on inventory drawdowns, as reported by Reuters. JP Morgan estimated Brent's fair value at around $90 a barrel for September, against the current prices near $106, suggesting markets are pricing in the risk of further supply losses beyond the roughly 10 million barrels per day already disrupted. At the same time, global oil demand has been running about 4.4 million barrels per day below year-ago levels, helping offset the loss of supply. The bank noted that "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."
The consumer impact of the Iran war has reached unprecedented levels, with a Brown University tracker measuring pump prices against a no-war baseline putting the extra US fuel burden at $109.1 billion, or $832.48 per household. According to Reuters, gasoline has climbed 48.9% and diesel 74.3% since February, with US gasoline at $4.37 a gallon and diesel at an all-time high of $6.31 a gallon heading into winter. JP Morgan sees Brent's fair value near $90, compared with its current price of around $105, with each 1 million bpd of lost supply adding roughly $4 to futures prices. This implies about 4 million bpd in additional losses beyond the 10 million bpd already disrupted. However, oil inventories may cushion the impact of a prolonged disruption, with stocks having fallen 555 million barrels, far below JPMorgan's earlier 1.6 billion-barrel estimate.
Oil industry executives are now preparing for a prolonged U.S.-Iran war with little expectation of a quick political settlement, as reported by Reuters. The mood at this year's Asia Pacific Petroleum Conference was notably uncheerful as hostilities in the Middle East escalate once again. Chevron CEO Mike Wirth reportedly stated at a University of Texas at Austin energy conference that it's harder to envision a scenario where prices soften and quickly, as the risks remain to the upside over the next few months. The conflict has been described as 'a war of egos', where neither the U.S. president nor Iran's leadership would accept anything less than an ostensible victory. However, industry delegates at APPEC believe regime change is more likely to occur in the United States than in Iran, though this scenario remains highly unlikely.
Brent crude futures fell $1.01, or 1.04%, to $103.70 a barrel, while US West Texas Intermediate futures declined $0.94, or 0.92%, to $101 a barrel, according to The Economic Times. Both benchmarks had ended about 1% lower on Thursday. Oil prices had risen to around four-month highs earlier this week after crude loadings at Saudi Arabia's Red Sea export hub of Yanbu had been suspended. Riyadh had also cancelled some deliveries to Europe after an attack last week damaged its East-West pipeline. Markets largely looked past the latest threats to supply, even as Saudi Arabia and Yemen's Iran-backed Houthis exchanged fresh strikes across their border on Thursday, widening the conflict's regional footprint. The note flagged mounting risks across the Middle East, including threats to shipping through the Bab el-Mandeb Strait and recent attacks on Saudi export routes, alongside continued strikes on Russian refining infrastructure and Ukrainian cities.
