Investment banking giant JP Morgan has acknowledged it is unable to forecast the trajectory of oil prices amid the ongoing US-Iran war, telling clients in a rare note that "we simply don't know how to model the endgame".
According to the BBC, the bank had assumed at the start of the conflict that the Trump administration would observe certain "economic red lines" it would be unwilling to cross, believing a deal to reopen the Strait of Hormuz would have been reached by June. Those red lines included oil prices rising above $100 a barrel, inflation reaching 4%, gasoline topping $5 a gallon, and 10-year US government bond yields hitting 5%.
Six months into the war, several of those thresholds have been crossed. Oil prices have surged above $100 in recent weeks, and the yield on 10-year bonds has ticked over 5%. Inflation has not yet reached 4%, and gasoline remains below $5 a gallon.
"Six months later, many of those lines have been crossed, yet the exit strategy is less clear, not more," JP Morgan's commodities research team wrote in the note. The bank described the market as "on edge".
An oil and gas industry source told the BBC it was "unusual" for a high-profile investment firm to issue such a candid admission, calling it "a reflection on the state of play" given the uncertainties surrounding the conflict.
Oil prices are a critical factor for inflation expectations globally, making JP Morgan's uncertainty significant for investors who rely on such forecasts for decision-making.