Brent crude oil climbed back above the $100 per barrel mark this week. The market's focus is gradually shifting from the geopolitical events themselves to expectations of how long the conflict will last, a variable that is becoming a key factor in determining oil prices.
On July 24, JPMorgan's global commodities research team released new calculations indicating that if the Middle East conflict lasts one month, the average monthly price of Brent crude is expected to remain near $94 per barrel. If it extends to three months, the average monthly price could rise to $114 per barrel. The team noted that for each additional month supply disruptions persist, the average monthly Brent price could increase by $7 to $8 per barrel. Meanwhile, the U.S. fuel market will also face pressure; if the risk escalates further, the national average gasoline price could break above $4.50 per gallon again.
This assessment is based on the backdrop of a continued decline in global oil supply flexibility. Although weak demand and the activation of some alternative shipping routes have partially cushioned the supply gap, the simultaneous pressure on the Strait of Hormuz and the Red Sea shipping lanes is progressively narrowing the surplus capacity available for market adjustment, making the potential upside risk for prices impossible to ignore.
Oil Prices Surge and Retreat, Market Risk Pricing Remains Cautious
On Thursday, Brent crude surged over 7% in a single day, briefly breaking through $100 per barrel to hit a two-month high. The main factors driving the oil price spike were the Houthi group's claim of attacking two Saudi tankers in the Red Sea and former President Trump's subsequent warning of possible "massive strikes" against Iran.
According to Xinhua News Agency, Yemen's Houthi group said in the early hours of the 23rd local time that it had attacked two Saudi oil tankers in the Red Sea, claiming the vessels violated the group's recently announced maritime embargo. Separately, Xinhua reported, citing U.S. media on Thursday, July 23, that U.S. President Trump said on the same day he was "seriously considering" resuming large-scale combat operations against Iran.
However, market sentiment noticeably eased on Friday, with both Brent and WTI crude falling more than 2%. Citing analysts, reports suggest that current oil prices have not yet fully priced in the risk under extreme scenarios. JPMorgan's calculations show that the Brent price of $100 per barrel is only about $13 above its July fair value estimate of $87 per barrel, indicating that the market is currently factoring in mainly a limited geopolitical premium.
Supply Recovery Slower Than Expected, Market Buffer Capacity Declines
The report points out that the global oil market is currently facing the dilemma of shrinking adjustment space on both the supply and demand sides.
The supply side continues to face pressure. Since the outbreak of the conflict, total global oil supply losses have accumulated to approximately 11.1 million barrels per day. The market had widely expected the Strait of Hormuz to gradually return to normal traffic in early June, but the actual recovery progress has fallen short of expectations. Currently, transit volume through the strait has only recovered to about 50% of pre-conflict levels, with approximately 7 million barrels per day of crude relying on diverted routes, which are themselves persistently troubled by security risks in the Red Sea region.
The demand side provides some buffer for the market. Current global oil demand has fallen by approximately 5.1 million barrels per day compared to pre-conflict levels, offsetting roughly 46% of the supply losses. However, institutions caution that this buffer is not unlimited. As supply disruptions persist, the market will increasingly rely on inventory adjustments, and oil prices' sensitivity to any new risks is gradually rising.
The analysis team believes that the simultaneous uncertainty in the Strait of Hormuz and the Red Sea is causing the market to focus on the possibility of prolonged supply disruptions. However, based on the current supply and demand landscape, the oil market has not yet entered a stage of "acute shortage." Models show that even if the two major shipping lanes are blocked, leading to an additional supply disruption of about 4 million barrels per day, as long as global demand remains weak, the market still has the capacity to avoid a severe supply gap.
The real risk is that if global demand recovers in the future while supply disruptions remain unresolved, the current buffer space could quickly be exhausted, significantly intensifying upward pressure on oil prices. For investors, the core variable driving future oil prices is shifting from "whether the conflict will escalate" to "how long the supply disruptions will last."
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