In an oil market report sent to Rigzone on Thursday by Natasha Kaneva, J.P. Morgan’s Head of Global Commodities Strategy, analysts at the company, including Kaneva, conceded that, for the first time since the start of the Iran conflict, they don’t have a baseline view.
“We simply don’t know how to model the endgame,” the analysts said.
“At the onset, we thought we did. We assumed there were economic red lines the U.S. administration would be unwilling to cross: $100 oil, gasoline near $5 a gallon, a four percent headline inflation or a five-handle on the 10-year Treasury yield,” they added.
“Those constraints gave us an implicit timeline, and we expected that by June there would be some form of agreement to reopen the Strait,” they continued.
“Six months later, many of those lines have been crossed, yet the exit strategy is less clear, not more. Oil is above $100 and the 10-year yield has a five-handle. Gasoline, at $4.37, remains at record seasonally adjusted levels even though peak driving season is behind us,” they stated.
“More concerning, diesel is at an all-time high of $6.31 a gallon heading into winter – the period of peak seasonal demand – while inventories sit at all-time lows,” they highlighted.
The analysts revealed in the report that, in their view, the market is on edge.
“Based on current supply and demand conditions, we estimate September fair value at $90, yet Brent is trading at $106,” the analysts noted.
“Using our rule of thumb that every one million barrels per day of supply disruption adds roughly $4 to the price, that $16 premium implies the market is pricing in the risk of an additional four million barrels per day of losses on top of the 10 million barrels per day already disrupted – rather than a confirmed, enduring reduction in supply,” they outlined.
No Shortage of Risk
The J.P. Morgan analysts went on to point out that there is no shortage of risk for the market to price.
“Over the past week, the conflict has opened new pressure points across the region,” they said.
“Houthi advances along Yemen’s Red Sea coast and into the Bab el-Mandeb have put another critical shipping route at risk, while an attack on Saudi Arabia’s East-West pipeline temporarily shut a key alternative route for crude exports,” they added.
The volatility is not contained to the Gulf either, the analysts highlighted.
“Despite President Trump’s claim of an energy truce, Ukrainian drones struck Russia’s Slavyansk refinery on Saturday [September 12] and, in a more significant display of reach, hit the Taneco refinery in Tatarstan – more than 1,200 km from the Ukraine-Russia border – on Sunday [September 13], followed by the Syzran refinery in Russia’s Samara region on Monday [September 14],” they said.
“Meanwhile, Russia launched attacks on the Ukrainian capital and other cities,” they added.
“With no clear signals from either the U.S. or Iran that they are prepared to de-escalate – and absent a diplomatic breakthrough on September 24, when President Trump and President Xi are set to meet in DC – the assumption that the disruption is temporary is becoming increasingly difficult to sustain,” they warned.
So, what happens if it doesn’t? The analysts asked in the report. Attempting to answer this question, they said the answer depends less on how long the conflict lasts than on how the physical oil market continues to clear while it does.
“Commodities are physical markets,” they said.
“They have to clear, meaning supply and demand must balance almost in real time. Put simply, when supply exceeds demand, the surplus flows into inventories, signaling an oversupplied market and pushing prices lower,” they added.
“The opposite is also true. When demand exceeds supply, the shortfall is met by drawing down inventories. Stock draws signal a market in deficit, which tends to push prices higher,” they continued.
“In other words, inventories are the key clearing mechanism between supply and demand. It is also why changes in OECD commercial inventories carry the largest weight in our oil pricing model,” they went on to state.
The analysts outlined in their report that this logic sat at the center of their oil market thesis in April.
“Given the scale of the supply disruption, we expected inventories to draw rapidly and cautioned that, while the headline number looks considerable, the volume actually available to draw is far smaller,” they pointed out.
“At the pace we anticipated – around 1.6 billion barrels – the drawdown would have pushed available stocks from 8.4 billion barrels at the start of the conflict toward operational floor levels by September,” they said.
“As inventories fell, we expected prices to rise toward $100 a barrel and remain there even after the Strait reopened – that was the theory,” they continued.
In Practice
In practice, however, the market cleared differently, the analysts noted in the report.
“Faced with uncertainty over how long the conflict might last, governments and consumers largely chose to preserve inventories, keeping barrels in reserve for tougher days ahead,” they revealed.
“Stocks fell sharply through May, but then leveled off in June and July, before resuming more modest draws in August and so far in September. In total, draws of crude oil and refined products amounted to 555 million barrels, only about one-third of what we had expected,” they said.
“In other words, even the limited drawable inventory was largely preserved,” they added.
Where those barrels came from is just as telling as the size of the draw, according to the J.P. Morgan analysts.
“Of the 555 million barrels released, the U.S. accounted for 219 million barrels (excluding natural gas liquids), followed by China at 147 million barrels, Europe at 77 million barrels, and Japan at 69 million barrels,” they said.
“South Korea moved in the opposite direction, building inventories by 12 million barrels, likely as insurance against an unusually uncertain supply backdrop, while several other countries were also able to add modestly to stocks,” they added.
“Instead, policymakers shifted far more of the adjustment burden onto demand. Since March, demand is running around 4.4 million barrels per day below last year’s level, about one and a half times larger than the adjustment implied by inventory draws or 2.9 million barrels per day,” they noted.
This distinction is critical for price formation, the analysts stated.
“Falling inventories tend to lift prices, while falling demand tends to depress them,” they said.
“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,” they added, noting that, since the conflict began, Brent has averaged “just $94”.
“It also suggests that fears of inventories being close to exhausted as a balancing mechanism are premature, at least for now,” they continued.
The analysts went on to state, however, that remaining capacity is uneven.
“U.S. commercial stocks are already near the bottom of their recent range, while the SPR can provide only another 30 million barrels,” they highlighted.
“The next round of draws would therefore have to come from the countries that have conserved inventories through the first six months of the conflict,” they said.
China
The J.P. Morgan analysts also noted in the report that China remains the largest swing factor.
“At a comfortable draw rate of around one million barrels per day, it could release another 120 million barrels by year-end, with perhaps another 10 million barrels coming from other non-OECD countries,” they stated.
“In aggregate, these draws would be sufficient to pull global inventories toward our 7.65 billion barrels ‘stress’ threshold,” they added.
“Beyond that point, however, the system becomes materially more fragile and demand adjustment would likely need to intensify, potentially through more explicit government intervention,” they continued.
The J.P Morgan analysts concluded in the report that, “for now, there is still ample inventory to cushion a prolonged disruption before operational stress levels are reached”, which they said “limits the need for crude prices to move materially higher”.
“If Middle Eastern flows were to remain at current levels, however, our framework would imply 4Q26 and December 2026 prices around $7 and $8 above our current forecasts, respectively,” they warned.
“In short, there is still enough dry powder to keep prices contained – for now,” they said.
SEB Scenarios
A chartpack sent to Rigzone on September 16 – which was produced by Erik Meyersson, SEB Chief Emerging Markets Strategist – included a table which gauged three different U.S.-Iran conflict scenarios in three months’ time and their estimated associated Brent oil prices.
The first of the scenarios in the table outlines Iran being “overcome”, which the scenario says would see a “rapid return to normal levels” in the Strait of Hormuz and no continued disruption of energy infrastructure. This scenario has an associated oil price of between $50 and $60 per barrel. It was given an estimated probability of 0.05 by SEB, the chartpack showed.
The second scenario talks of negotiations and includes two potential paths. The first of these looks at negotiations amid continued energy disruption and the second looks at negotiations amid energy “normalization”. Under the first path, there is a “large/moderate disruption” in Hormuz and the continued disruption of energy infrastructure. Under the second, there is a “limited disruption” in Hormuz and no continued disruption in energy infrastructure.
The first path here has an associated oil price of $75 to $95 per barrel and the second has an associated oil price of $80 to $90 per barrel. SEB gave each scenario a 0.2 probability and the overall negotiations scenario a 0.4 probability.
The third scenario in the table examines a “continuation” and includes three potential roads. The first of these is a “low intense/unfinished conflict”, the second is “regime destabilization”, and the third is “renewed conflict”. Under the first path, there is “significant disruption” in Hormuz and the threat of future strikes on energy infrastructure remains, the chartpack outlined. Under the second road, Hormuz sees a “limited/moderate disruption” and the continued disruption of energy infrastructure is limited by regime degradation. Under the third path, Hormuz sees a “large disruption” and there is a continued disruption of energy infrastructure.
The associated oil price is $80 to $100 under the first path, $90 to $100 under the second path, and $100 to $150 under the third path. SEB gives the first path a 0.2 probability, the second path a 0.1 probability, the third path a 0.25 probability, and the overall scenario a 0.55 probability.
Trump
Rigzone has contacted the White House and the Iranian Ministry of Foreign Affairs for comment on the J.P. Morgan report and SEB’s chartpack. At the time of writing, neither has responded to Rigzone.
In a maternal healthcare event hosted in the White House Oval Office on May 11, which was streamed live on the White House YouTube page, U.S. President Donald Trump said, “as soon as this is over with Iran … you’re going to see gasoline and oil drop like a rock”.
In a statement posted on his Truth Social page on September 14, Trump said “oil will drop like a rock as soon as the Military Conflict with Iran is over”, adding “that will not be long”.
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