In a report sent to Rigzone on Monday by Natasha Kaneva, J.P. Morgan’s head of global commodities strategy, J.P. Morgan analysts, including Kaneva, revealed their first oil price forecasts in two months.
According to these forecasts, the analysts see the Brent spot price averaging $96 per barrel in 2026 and $75 per barrel in 2027, and the West Texas Intermediate (WTI) spot price averaging $89 per barrel this year and $70 per barrel next year.
“From the onset of the [U.S.-Iran] conflict, we deliberately refrained from publishing price targets for two months,” the J.P. Morgan analysts said in the report.
“First, in an environment where information moves fast but is often unreliable, point forecasts risked producing a classic ‘garbage in, garbage out’ outcome,” they highlighted.
The analysts noted in the report that there was also a deeper reason for caution.
“Our pricing frameworks are effectively trained on the modern oil market – roughly the past 25-30 years of liquid futures trading,” they pointed out.
“Within that dataset, there is no true analogue for a disruption of this magnitude. To find anything remotely comparable, one would have to look back to episodes such as the 1956 Suez Crisis or even earlier geopolitical supply shocks,” they said.
“But those events predate modern oil futures markets – Brent and WTI benchmarks only began trading in the 1980s. As a result, they offer limited guidance for how prices should behave in a real-time, financialized market structure,” they added.
“Put differently, applying standard models to the current environment risks extrapolating from a dataset that simply does not contain this kind of shock,” they highlighted.
The J.P. Morgan analysts also noted in the report that a third issue emerged when they forced their oil price model to generate an explicit price path, stating that the results initially appeared counterintuitive.
“In early March, assuming that the Strait would reopen by early May, the model implied Brent would average around $100 across March, April, and May,” they revealed.
“At first glance, this seemed implausibly low given the magnitude of the shock. This intuition was informed by 2022. At the onset of the Russia-Ukraine war, Brent’s fair value was closer to $90, reflecting tight post-COVID balances, OPEC supply restraint, strong reopening demand, and already depleted inventories,” they added.
“Markets feared that as much as three million barrels per day of Russian supply could be removed, and Brent spiked to $128 in early March. In the event, only about 0.7 million barrels per day of Druzhba pipeline flows were lost as the remaining barrels were rerouted, and oil finished the year in the mid-$80s,” they continued.
The J.P. Morgan analysts noted in the report that, in 2026, the starting point was fundamentally different.
“We entered the year with swollen inventories and an estimated fair value closer to $60,” they said.
“Yet the shock itself was far larger – nearly 14 million barrels per day of supply was effectively removed at the peak. Intuitively, this should have resulted in a much more severe price response,” they said.
“And yet, directionally, the framework was right. Brent averaged $99 in March and $102 in April,” they continued.
The J.P. Morgan analysts said their model’s output highlights “four key mechanisms shaping price formation in the current environment”.
The first of these, according to the report, is that the starting point of the market matters.
“The price response to a given supply shock is not constant – it depends critically on whether the system begins in surplus or deficit, as captured by inventory levels,” they said.
The second mechanism is that “duration dominates the scale”, the analysts highlighted.
“The market is less concerned with the size of the disruption in isolation and more with how long it persists. A temporary shock, even a large one, can be absorbed. A prolonged disruption cannot,” they added.
Outlining another mechanism in the report, the analysts said the nature of the shock matters.
“This is not a conventional price-led adjustment. The scale and location of the disruption imply that a meaningful portion of demand is removed through availability constraints, not price,” they said.
Finally, the analysts noted that the adjustment is shifting down the barrel.
“Rather than being fully expressed in flat crude prices, a larger share of the dislocation is showing up in refined product cracks,” they said.
“This redistributes the price signal along the value chain, allowing crude benchmarks to remain lower than would otherwise be implied by the size of the supply shock,” they added.
The analysts stated in the report that they have shifted their focus away from headline-driven expectations around reopening of the Strait and toward the underlying physical dynamics of the market, “concluding that it is ultimately the pace of inventory depletion that will force the system toward resolution”.
They added in the report that, “given the magnitude of the demand pullback”, their balance suggests OECD commercial inventories “are on track to approach operational stress levels by early June”.
They noted in the report, however, that the timing is inherently uncertain because inventories behave like cash on hand, predicting that “rationing can extend the runway, potentially pushing the draw toward June 30”.
They added, though, that this would come at the cost of reduced consumption, lower refinery runs, and a broader economic slowdown.
“Our conclusion is that one way or another, the Strait reopens in June – anchored for simplicity on June 1 – with the market requiring a clear, credible announcement, ratified and confirmed by both sides, such as a statement from the UN Security Council,” the analysts said.
In the report, the J.P. Morgan analysts pointed out that, going into 2026, their base case was that a large-scale military attack on Iran was a very low-probability event, “precisely because of the cascading consequences we are now describing”.
“Yet the unprecedented has occurred. Since March 2, vessel transit through the Strait of Hormuz has slowed to a near standstill, marking the first near-complete halt in its recorded history,” they noted.
“Across more than a millennium – from the medieval spice and silk routes of the 10th century, through the era of Gulf commerce and Baluchi piracy, and even the eight‑year Iran-Iraq War when hundreds of tankers were attacked – the Strait was repeatedly threatened but never effectively closed,” they highlighted.
Refined Products
In another report sent to Rigzone by Kaneva on Friday, analysts at J.P. Morgan, including Kaneva, asked if crude can remain broadly stable around current levels while refined product prices continue to rise.
Responding to that question, the analysts said the answer appears to be yes, adding that this “may well become the dominant adjustment mechanism”.
“If refinery runs remain constrained by insufficient crude availability, the bottleneck shifts downstream. In that case, refined product prices – not another sharp leg higher in crude – become the primary transmission channel for demand destruction,” they said in that report.
“In that scenario, crude could plausibly stabilize around $100 even as product cracks widen sharply. The next phase of the shock then may look less like a classic crude spike and more like a refining and end-user fuel crunch,” they added.
The analysts went on to ask in the report which products are most vulnerable. Answering this question, the analysts said jet fuel has been most acutely affected.
“Jet prices have nearly doubled across Asia, Europe and the U.S., with jet cracks widening to an extraordinary $80-100 per barrel over crude,” they said.
“‘Crack spreads’ may sound esoteric, but the concept is straightforward: they approximate the margin refiners earn by turning crude into fuels – the difference between the price of crude and the value of the finished products produced from it,” they added.
“In practice, it’s the market’s way of telling refiners what to maximize. Right now, the signal is clear: produce as much jet fuel as possible,” they continued.
An analysis by the S&P Global Energy Fuels and Refining team sent to Rigzone by the S&P Global team on Monday warned that global demand for refined products will decline “twice as much as during the ‘Great Recession’”.
“Refined product markets have crossed a critical threshold where a historic supply disruption is evolving into an outright demand crisis,” S&P Global Energy said in the analysis.
“Markets are now facing a severe demand reckoning that will likely last through the summer travel season, and possibly longer,” it added.
S&P Global Energy stated in the analysis that it now expects global refinery runs to decline 5.2 million barrels per day and 2.7 million barrels per day year over year in the second and third quarters, respectively. On an annual average basis, global crude runs are now expected to decline by 1.9 million barrels per day, the company revealed.
“The magnitude of losses in refinery runs are expected to be largely mirrored in refined product demand reductions, with year over year declines of 4.4 million barrels per day and 2.2 million barrels per day in the second and third quarters, respectively. That constitutes a decline of 1.8 million barrels per day in 2026, on an annual average basis,” the company added.
The projections reflect S&P Global Energy’s base case whereby the effective closure of the Strait of Hormuz continues through May before a gradual return of oil flows, the analysis stated, highlighting that second quarter product demand estimates were revised lower by 4.7 million barrels per day relative to “pre-crisis” projections.
“The severity of the demand decline in the second quarter – more than twice that experienced during the weakest quarter of the ‘Great Recession’ of 2008/2009 – still trails the expected loss of supply, with inventory draws making up the balance,” S&P Global Energy said in the analysis.
The company noted in the analysis that its outlook “reflects the reality that the Hormuz crisis is now a prolonged event with lasting physical consequences”.
“Even if flows restarted immediately, operational and logistical delays would postpone meaningful relief to product markets by months rather than weeks,” it warned.
Daniel Evans, Vice President, Global Head of Fuels and Refining Research, S&P Global Energy, stated in the analysis that “we have now crossed the Rubicon”.
“Given the lags between any potential restart of flows through the Strait of Hormuz and the arrival of meaningful relief to product supply, the market equation cannot be solved without demand acting as the balancer,” he said.
“Markets are now bracing for a severe demand reckoning through early third quarter or longer,” he added.
Karim Fawaz, Executive Director, Fuels and Refining, S&P Global Energy, said in the analysis, “as outages persist, the lag between any resumption of flows and normalization of product markets becomes insurmountable”.
“Constrained supply defines the system, and demand must contract to fit within it,” Fawaz added.
“What matters now is the ‘call on demand curtailment’ – the volume of consumption that must disappear given fixed supply constraints and limited inventory draw capacity,” Fawaz continued.
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