At the next stop in gas prices, J.P. Morgan Chase will also have a hard time giving an answer! The end of the war is difficult to predict, and the “temporary supply cut off” hypothesis is facing a reset

The Zhitong Finance App learned that more than six months after the outbreak of the war in Iran, J.P. Morgan's oil analysts are publicly expressing the views that many traders have been discussing privately for some time: the path to the end of the war is becoming more and more unpredictable. What J.P. Morgan Chase actually revised this time was a judgment on the mechanism for ending the conflict: previously, it was assumed that economic pressure that the US government was unwilling to bear had already appeared, but it did not bring a clear path of downgrade.

Energy risks in the Middle East are expanding from restrictions on straits to damage to alternative transportation routes themselves, making it increasingly difficult to maintain the predictive premise that “conflict will temporarily disrupt and supply will soon resume”. According to the latest reports from September 17 to 18, the Houthis have taken over the port of Moca and several islands near the Strait of Mande in the past week. Saudi Arabia and the Houthis attacked each other again on the 17th; Iran's Revolutionary Guard Navy claimed that it hit a Togolese tanker trying to pass through the Strait of Hormuz on the 17th.

The extent of damage to Saudi Arabia's east-west oil pipeline has also been further clarified: satellite images and industry sources show that three pumping stations were damaged, and this pipeline, which was originally used to bypass the Strait of Hormuz and previously transported about 4 million to 5 million barrels of crude oil every day, was forced to stop operation. Transportation in Hormuz is severely restricted, but the latest data does not support the continued “near suspension of flights” in the Mander Strait — some media quoted Windward as saying that its daily traffic volume had dropped from 35 to 25 ships, then rebounded to 45 ships on September 13. What really continues to put pressure on the energy market is that navigation safety, actual export volume, and reliability of alternative routes are simultaneously affected, rather than simply “completely shut down or fully restored.”

Oil prices rose sharply after the war broke out. The recent decline mainly reflects that the market has begun trading and some supply has resumed, rather than the risk of war, has disappeared. Based on the settlement price on February 27, the last trading day before the war broke out on February 28, Brent and WTI were $72.48 and $67.02 per barrel, respectively; by September 15, the two had risen to $108.75 and $105.83, respectively.

It then declined for two consecutive trading days. It closed at 104.82 US dollars and 101.91 US dollars respectively on September 17, down about 3.6% and 3.7% from the 15th, but still accumulated increases of about 44.6% and 52.1% compared to before the war. These increases were calculated based on the benchmark futures prices at various points in time. By 00:20 GMT on September 18, the two fell further to $103.77 and $100.88; the market is concerned about Saudi Arabia's efforts to restore about half of its pipeline capacity within a few days, as well as arrangements to increase supply through ship-to-ship transfers off the coast of Oman. As a result, this round of decline is closer to a return in risk premiums driven by expectations of supply recovery, and cannot yet be directly equated with the normalization of energy transportation.

Oil prices have declined, but supply risks have not reversed! It is difficult for J.P. Morgan to determine the end of oil prices, and it is difficult for analysts to determine how to model oil prices

Natasha Kaneva and other senior analysts at J.P. Morgan Chase said in a report that the bank previously assumed that several economic red lines that the US government was unwilling to cross — including oil prices rising above $100 per barrel, gasoline prices close to $5 per gallon, and surging US Treasury yields — had already appeared, making the exit strategy even more unclear.

As energy prices soar, and its ripple effects could disrupt global economic growth and drive up inflation, it is becoming increasingly difficult for oil traders and analysts to determine how long the war in Iran will last. Recent attacks on critical energy infrastructure, including Saudi Arabia's critical east-west oil pipeline, have heightened market concerns about further tightening of supply.

“In our opinion, the market is in a tense state,” analysts said in a report widely quoted by market participants on Thursday. Analysts said that although the price was close to $106, the fair value of oil was estimated to be around $90 per barrel in September; they added that this meant that the market was taking into account the risk of losing an additional 4 million b/d supply in addition to the already disrupted 10 million b/d supply.

“The US and Iran have not sent a clear signal that they are ready to ease the situation — and if President Trump and President Xi Jinping fail to achieve a diplomatic breakthrough when they plan to meet in Washington on September 24 — then the assumption that supply disruptions are only a temporary phenomenon is becoming increasingly difficult to maintain,” the analyst wrote.

They said that the global inventory buffer was reduced during the war, but there is still enough buffer space to limit further increases in crude oil prices.

However, the agency estimates that if supply flows in the Middle East remain at current levels, oil prices for the fourth quarter and December 2026 may be 7 and 8 US dollars higher than the current forecast of about 80 US dollars and 78 US dollars per barrel, respectively.

On the inflation and interest rate side, the Federal Reserve raised interest rates for the first time since 2023 on September 16, raising the policy interest rate by 25 basis points to 3.75% — 4.00%; the day before, the yield on 10-year US Treasury bonds, the “anchor of global asset pricing,” hit a record high since 2007. Japan's 10-year Treasury yield reached about 3.036%, a 30-year high. The yield on UK 30-year treasury bonds hit about 5.96% this week, a new high since 1998.

Recent changes show that with the fall in oil prices and the introduction of measures to stabilize the bond market, the 10-year yield on US bonds fell back to about 4.93% on the 17th, and the UK 30-year yield also fell to about 5.74%. Derived from the macro-pricing mechanism, the more difficult it is to determine the duration of the energy shock, the more difficult it is to stabilize the path of falling inflation and long-term discount rates; the simultaneous cooling of oil prices and long-term bond yields can ease the pressure on stock valuations, but what determines whether this relief can continue is still a recovery in supply and actual changes in inflation expectations.

Wall Street disagreements fall on the pace of recovery

The core of the difference in predictions between Goldman Sachs and Citi is the different assumptions about the recovery time of supply in the Gulf. On September 7, Goldman Sachs raised the Brent and WTI forecasts for December 2026 and 2027 by 5 US dollars each: expected to be 85 US dollars and 80 US dollars and 75 US dollars in 2027 respectively; its benchmark scenario assumes that the average production in the Gulf in 2027 is still about 500,000 b/d lower than before the war. If the gap widens to 4 million b/d, Brent may exceed $120. The latter is a scenario where supply damage is more severe, rather than the benchmark forecast.

Citi announced on September 3 that it raised the Brent average price forecast for the third quarter from $80 to $86, but maintained the forecast of $70 for the fourth quarter and $65 for 2027, assuming the reopening of the Strait of Hormuz in the fourth quarter; this judgment predates the recent further clarification of the extent of damage to the Saudi pipeline. The distance between Wall Street predictions essentially reflects different estimates of “when and how much” the Gulf's international oil supply will recover.

J.P. Morgan analysts estimate that the reasonable price of oil is around $90 per barrel, but the price is close to $106 per barrel, which means that the market has factored the risk of further supply losses into the price, and the difference of about $16 reflects the risk of further supply losses.

According to the J.P. Morgan Chase calculation model, in addition to the 10 million b/d that has already been disrupted, the market also takes into account the possibility of an additional 4 million b/d supply loss, not that additional losses have already occurred. The bank also believes that inventories still have a buffering effect, so it does not directly predict that oil prices will immediately get out of control; however, if the supply flow in the Middle East remains at the current level, prices for the fourth quarter and December may be 7 and 8 US dollars higher than the original predictions of about 80 US dollars and 78 US dollars, respectively, that is, about 87 US dollars and 86 US dollars under the conditions. This means that even if oil prices may still fall below current levels at the end of the year, the decline may be less than originally anticipated; the key change in investment is that pressure on energy costs and interest rates may last longer than assumed by the original model.