JPMorgan Oil Team Abandons Iran War Forecast as Redlines Fall

JPMorgan’s commodities desk has walked away from trying to call the end of the Iran war, telling clients its economic assumptions no longer hold. For traders, that means the bank with one of the most widely followed oil frameworks on the Street just admitted the model is broken.

What JPMorgan actually said

JPMorgan has thrown in the towel after attempting for months to forecast how and when the Iran war would end. “For the first time since the start of the Iran conflict, we don’t have a baseline view,” said Natasha Kaneva, head of global commodities strategy, in a Thursday note. “We simply don’t know how to model the endgame.”

JPMorgan assumed at the start of the war that several economic redlines would force President Donald Trump into an agreement to open the Strait of Hormuz sometime in June. Those redlines included oil above $100, gas near $5 per gallon and 10-year Treasury yields above 5%.

The redlines have all been crossed

“Six months later, many of those lines have been crossed, yet the exit strategy is less clear, not more,” Kaneva said. The U.S. and Iran did reach an interim deal to open Hormuz in June, but the agreement quickly collapsed into renewed fighting that has escalated in recent weeks.

Oil is now trading near $106 a barrel, while diesel prices have set a record at $6.31 a gallon, arriving at that mark just as seasonal demand peaks and stockpiles sit near historic lows.

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How the crude math breaks down

JPMorgan estimates that the fair price for Brent crude is $90 but the international benchmark is trading near $105 per barrel after almost touching $110 earlier this week.

The bank assumes every 1 million barrels per day of supply lost adds about $4 to the futures price. This means the market is pricing in the risk of around 4 million bpd of additional supply losses on top of the 10 million bpd that is already disrupted.

But there are enough oil inventories left to cushion a prolonged disruption, Kaneva said.

The wildcard is Trump, not the barrel math

Trump told Axios on Thursday that he is weighing a major decision: whether to resume large-scale military operations against Iran or bring the war to a close.

Saudi Arabia’s East-West pipeline went offline after a drone strike originating in Iraq left it damaged. Iran-allied Houthi militants have also made advances that could tighten their control over tanker traffic in the southern Red Sea.

Options market and stocks to watch

Watch for continued flow into energy names as the Brent premium to fair value stays wide:

• XOM and CVX: watch for elevated call activity if Middle East supply disruptions deepen, given both have direct upside to sustained $100+ Brent.
• USO: watch for hedging flow as JPMorgan’s $90 fair value versus $105 spot leaves a wide risk premium that can unwind either direction on headlines.
• OXY and SLB: watch for follow-through if Gulf and Red Sea supply risk keeps refiners and services bid.
• JPM: watch for reaction in the shares as its own commodities team publicly pulls its baseline.

For related coverage, see other news.

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