JP Morgan’s commodities research team issued a statement expressing uncertainty about predicting oil price movements resulting from the ongoing US-Iran conflict. The bank indicated it initially expected certain economic thresholds to serve as negotiating boundaries, including oil exceeding $100 per barrel, inflation reaching 4%, gasoline prices surpassing $5 per gallon, and government bond yields hitting 5%. The bank anticipated these limits would prompt a resolution allowing reopening of the Strait of Hormuz shipping lane by June.
Several of these economic indicators have since been crossed. Oil prices have recently climbed above $100 per barrel, government bond yields have exceeded 5%, though inflation remains below 4% and gasoline prices have not reached $5. Despite these developments, the path to conflict resolution remains unclear. JP Morgan analysts noted that six months into the conflict, “many of those lines have been crossed, yet the exit strategy is less clear, not more,” and stated they lack a baseline analytical framework for modeling potential outcomes.
President Trump indicated last week that the conflict would likely extend beyond the midterm elections, with oil prices potentially declining afterward. The Federal Reserve responded to sustained elevated energy costs by raising interest rates this week—its first increase in more than three years—citing persistent inflation as the justification. JP Morgan estimated fair value for oil at approximately $90 per barrel in September, yet current trading levels remain above $100, reflecting market pricing of additional disruption risks.
Additional supply concerns stem from Houthi forces backed by Iran controlling areas near the Bab al-Mandab Strait, another critical shipping route. The Russia-Ukraine conflict continues affecting global oil supplies as well. Analysts indicated that absent clear de-escalation signals, assumptions that oil supply disruptions would prove temporary are becoming increasingly difficult to maintain, contributing to overall market uncertainty.
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