Investment banking giant JP Morgan has stated it is having difficulty predicting the impact of the US-Iran conflict on oil prices, with analysts admitting in a rare note that they "simply don't know how to model the endgame." The bank indicated that it had initially assumed "economic red lines" would prevent the conflict from escalating, leading to an expected resolution by June.
These presumed red lines included oil prices exceeding $100 a barrel, inflation reaching 4%, gasoline prices surpassing $5 a gallon, and the yield on 10-year government borrowing hitting 5%. However, despite many of these thresholds being crossed in recent weeks, the path forward remains unclear. "For the first time since the start of the Iran conflict, we don't have a baseline view," JP Morgan's commodities research team wrote.
The market is currently on edge, reflecting the difficulty in forecasting the White House's next moves. An oil and gas industry source described JP Morgan's note as unusual for such a prominent financial institution, but acknowledged it was a realistic assessment given the prevailing uncertainties surrounding the conflict.
Oil prices are a significant factor in global inflation due to the commodity's widespread use and humanity's dependence on it. Investors often base their decisions on inflation expectations, making oil price volatility a key concern.
While gasoline prices have not yet reached $5 a gallon and inflation has not hit 4%, oil prices have surged back above $100. Additionally, the interest rate on U.S. government bonds has recently surpassed 5%.