'We simply don't know' - JP Morgan struggling to forecast oil prices due to US-Iran war
The bank said it "assumed" there would be economic red lines, like oil at $100 a barrel, that the US would be unwilling the cross.
'We simply don't know' - JP Morgan struggles to forecast oil prices amid US-Iran war
Investment banking giant JP Morgan has said it is having difficulty predicting how oil prices will be affected by the US-Iran war, telling investors in a rare note that "we simply don't know how to model the endgame".
The bank said it had "assumed" at the outset of the conflict that there would be "economic red lines" the US would not be willing to cross, and so it believed a deal would have been reached to reopen the Strait of Hormuz shipping lane in June.
It said those red lines included oil prices climbing above $100 a barrel, inflation reaching 4%, gasoline rising above $5 a gallon and interest rates on 10-year government borrowing hitting 5%.
"The market is on edge," analysts said.
JP Morgan is a major name in the financial world, so its experts admitting they are struggling to assess the economic impact of the US-Iran conflict highlights how hard it is to predict the White House's next moves.
An oil and gas industry source told the BBC it was "unusual" for such a prominent investment firm to release such a note, but said it was a "reflection on the state of play", given the uncertainty surrounding the conflict.
Investors often base decisions on inflation expectations, and oil prices are a major driver of rising costs around the world because of the commodity's widespread use and humanity's dependence on it.
Although gasoline is still below $5 and inflation has also not reached 4%, oil prices have surged back above $100 in recent weeks, and the interest rate - known as a yield - on government bonds, which are issued so the US can borrow money from financial markets, has moved above 5%.
"Six months later [since the war began], many of those lines have been crossed, yet the exit strategy is less clear, not more," said the commodities research team at JP Morgan in note.
"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."
US President Donald Trump said last week he did not think the Iran war would end until after November's midterm elections in the US.
"Right after the election, oil prices are going to be tumbling downward," Trump told reporters last week. "I think it's going to take a little bit longer than the midterm."
High oil prices have been driving up the cost of living in the US and around the world, with fuel and energy prices rising ahead of the colder months.
The US central bank, the Federal Reserve, raised interest rates this week for the first time in more than three years and signaled they could be increased further this year and into 2027 in an effort to slow rising prices.
Fed Chair Kevin Warsh said the move was because "inflation is too high and has been for too long", though Trump disagreed with the decision.
In JP Morgan's note, analysts said it estimated the "fair value" for oil in September would be around $90 a barrel, despite it trading above $100.
But it said "the market is pricing in the risk" of further disruption to trade.
Analysts pointed to additional risks to oil supply in the Middle East, with Yemen's Houthis, which are backed by Iran, seizing an area at the mouth of the waterway in the Bab al-Mandab Strait, another key international shipping route.
The conflict between Russia and Ukraine also continues to have an impact.
Analysts said that with "no clear signals" of the war de-escalating, the assumption that global oil supply disruption was temporary is "becoming increasingly difficult to sustain".