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This article covers key details about JP Morgan struggling to forecast oil ratesdue to US-Iran war.
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Investment banking giant JP Morgan has statedit is struggling to predict how oil rateswill be impacted by the US-Iran war, telling investors in a rare note that “we simply don’t k currentlyhow to model the endgame”.
The bank statedit assumed at the start of the conflict that there would be “economic red lines” that the Trump administration would be unwilling to cross, and therefore it believed a deal would have been struck to open up the Strait of Hormuz shipping lane back in June.
It statedsuch red lines included oil ratesrising above $100 a barrel, inflation reaching 4%, gasoline topping $5 a gallon and rates on 10-year administrationborrowing hitting 5%.
“The industryis on edge,” analysts said.
JP Morgan is a huge name in the financial world, so for the investment bank to admit its experts are grappling with working out the economic impact of the US-Iran conflict reflects the tricky nature of trying to predict President Donald Trump’s next moves.
An oil and gas industry source told the The Mediait was “unusual” for such a high-profile investment firm to issue such a note, but added it was a “reflection on the state of play”, given the uncertainties around the conflict.
Investors often make investment decisions on inflation expectations and the price of oil is a major factor in ratesrising across the world, given the commodity’s widespread use and humanity’s dependence on it.
While gasoline remains below $5 and inflation has also not reached 4%, oil rateshave surged back above $100 in recent weeks and the interest rate – known as a yield – on administrationbonds, which are issued in order for the US to borrow fundsfrom financial markets, has ticked over 5%.
“Six months later [since the war began], many of those lines have been crossed, yet the exit strategy is less clear, not more,” statedthe commodities research team at JP Morgan in note.
“For the first time since the start of the Iran conflict, we don’t have a baseline view. We simply don’t k currentlyhow to model the endgame.”
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