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The collapse of US-Iran negotiations has once again led to the closure of the Strait of Hormuz, sending Brent back to $85 / bbl as consumers and traders increased their purchases. As today’s chart shows, however, several factors have cushioned the oil supply deficit since the war began. Weaker demand is a major factor – explained by sharply lower Chinese imports – alongside re-routing and drawdown of existing inventories. These offsets have led to a deficit of just 2.5 Mbbl / day, far from the 17 Mbbl / day implied by the strait’s closure. Why this matters: Strategic reserves are now at historically low levels, and Chinese oil demand is more likely to recover than to fall further. If imports pick up while Hormuz remains closed, the deficit could widen sharply in the coming months. Should the market remain in a deficit, our base case is for Brent to trade at $87 / bbl one year out, with a one-in-four chance of exceeding $100 / bbl.