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The main risk in the current macro environment is a failed diplomatic resolution to the US-Iran conflict, as the crude oil market is running out of buffers. Indeed, it is remarkable that crude oil prices remains below $90 / barrel with neither the US nor Iran willing to lift their blockade of the Strait of Hormuz… Today’s chart shows how our structural model breaks down the relative contributions of the market and macro factors driving the 20% rise in oil prices since the start of the US-Iran war. Constrained trade flows, inventory drawdowns and market sentiment are the main sources of upward pressure on crude oil prices since March. So far, prices have been held back by a collapse in imports from China and high US commercial inventories. However, China ramped up purchases in July by 2.5 Mbbl/d, and exceptionally low US strategic reserves mean refineries have less of a buffer. Barring a diplomatic resolution, these factors mean that oil price risks tilt to the upside in the near-term, as the physical market is running out of offsets.