JPMorgan Chase raises "worst-case scenario probability" to 17%: If the Strait of Hormuz is closed, oil prices will rise to $120.

The situation in the Middle East is escalating again, and oil prices are standing on the edge of a cliff. According to CCTV news, on the 14th, two oil refineries in Bushehr province in southern Iran were attacked by Israeli airstrikes. The South Pars refinery's Phase 14 facility exploded and caught fire, while the Fajr Jam refinery was also targeted. According to reports from the Wind Trading Platform, Morgan Stanley's commodity analyst Natasha Kaneva's latest report shows that within just one day, the probability forecast of the "worst-case scenario" has skyrocketed from 7% to 17% - this means that the likelihood of the closure of the Strait of Hormuz and a sharp increase in oil prices has more than doubled. Kaneva pointed out that the geopolitical risk premium is already $10 higher than the fair value of $66 derived from their model, indicating a 17% probability of the worst-case scenario occurring. Wall Street Journal previously mentioned that in Morgan Stanley's "worst-case scenario," including a switch from linear to exponential oil price reaction, the supply impact could exceed the scope of Iran reducing oil exports by 2.1 million barrels per day, pushing oil prices to surge to $120-130. The focus is on the Strait of Hormuz The Strait of Hormuz - the gateway to 20% of global oil supply - has become the market's focus. However, Natasha Kaneva admitted that her "comfort zone" still remains at $60-65 per barrel, as persistently high energy prices could reignite inflation and reverse the trend of consumer price cooling in the US for months. This goes against Trump's campaign promise of "rapidly defeating inflation, lowering prices, and stimulating explosive economic growth." She analyzed that if geopolitical policies further push oil prices higher, Trump may prioritize maintaining low energy prices to avoid a severe blow to the domestic economy and voter confidence. Kaneva noted that it is necessary to consider Iran's retaliatory actions, but believes the risk of the strait being closed is very low, mainly because such a situation has never occurred before. Deutsche Bank energy analyst Hsueh outlined three possible pathways for supply disruptions, each of which could push Brent crude oil prices above $100. At the same time, Hsueh has already assumed a moderate decrease in Iranian oil exports and production by the end of the year, with a reduction of 400,000 barrels per day (-25%), but he acknowledges that the worst-case scenario could lead to a sharp decline in Iranian oil production. Regarding the scenario of the closure of the Strait of Hormuz, Hsueh also believes that given the significant global impact of such a blockade, Iran is likely to use it as a last resort and only consider it in extreme circumstances. Hsueh added that although the closure of the strait is seen as Iran's "last resort," the current uncertainty in the situation (including Israeli follow-up actions, the intensity of Iranian retaliation, and the extent of US intervention) is bringing this risk closer to reality. Hsueh further quoted retired US Navy Admiral James Stavridis in 2018, estimating that if the strait is closed, reopening could take weeks to two months, during which time the global energy market would descend into chaos. Market pricing shows that there is still some distance from extreme scenarios The current Brent futures price curve indicates that the market has only partially priced in a moderate risk scenario and has not yet reflected the possibility of the closure of the Strait of Hormuz. Deutsche Bank stated that the market is not adequately prepared for the worst-case scenario, and if the conflict continues to escalate, it may trigger severe volatility in oil prices at Monday's opening. At the same time, gold as a safe-haven asset has shown potential for an increase, and commodity trading advisors (CTAs) are closely monitoring opportunities for oil price breakthroughs. Source: Wall Street Journal, author Li Xiaoyin, GMTEight editor: Chen Qiuda