Brent crude traded at $92.56 in London on Friday morning, down about 20 percent from its 2026 peak and on track for its worst month since the Covid-19 pandemic, as investors bet that a tentative U.S.-Iran ceasefire extension will reopen the Strait of Hormuz. Hours earlier, Federal Reserve Governor Michelle Bowman used a speech in Reykjavik to argue that the inflation spike the war produced is not a reason to raise interest rates.
The two threads are the same trade. The energy shock that pushed the personal consumption expenditures price index up 3.8 percent in April is reversing on the screens, and a Fed governor said Friday the central bank should let it.
What moved
Brent was off 1.2 percent Friday and has fallen almost 19 percent in May. West Texas Intermediate was down 1.9 percent at $87.18 and has lost 16.5 percent month-to-date. The Dow Jones Industrial Average rose 0.5 percent in early trading to 50,902.56, the S&P 500 climbed 0.4 percent to 7,594.10 and the Nasdaq Composite added 0.5 percent to 27,062.47, extending Thursday's records.
U.S. and Iranian negotiators reached a tentative agreement Thursday on a 60-day memorandum of understanding that would extend the ceasefire, reopen the strait and begin talks on Iran's nuclear program. The deal still needs President Trump's signature. Vice President JD Vance said the two sides had "made a lot of progress," but that it was "still TBD" whether Trump would sign.
Bowman's case
Bowman addressed the question hanging over the bond market since the war began: whether the Fed should respond to oil-driven inflation by tightening. Her answer was no.
"Reacting to temporarily elevated energy price inflation would add unwarranted policy restraint, weighing unnecessarily on economic activity and labor market conditions," Bowman said, adding that research shows when reacting to temporary energy shocks, "policy should not be overly aggressive." The Dallas Fed's trimmed-mean gauge puts 12-month inflation at 2.3 percent. Market pricing shows virtually no chance of cuts through 2027.
The skeptics
The reversal in crude is not yet in physical flows. UBS analysts led by Henri Patricot wrote that there is "little evidence" of any short-term improvement in Gulf vessel traffic and that crude loadings remain "extremely low." Iranian loadings averaged under 0.3 million barrels a day in May, against 1.7 million in March. Exxon Mobil Senior Vice President Neil Chapman warned Thursday that physical Brent cargoes could spike to $150 to $160 per barrel within weeks. Bob Parker of the International Capital Markets Association told CNBC that crude will likely stay between $90 and $100 "at least for the next couple of months" and that even if the strait reopens, "opening will only be partial."
Tehran has not endorsed the U.S. version of events. Iranian chief negotiator Mohammed Bagher Ghalibaf wrote on X Friday that "The winner of any agreement is the side that is better prepared for war the day after it is signed." Bowman flagged the war's duration as the variable that would change her stance: should fighting be prolonged and inflation pressures steepen, "the more likely I will consider shifting my approach to thinking about the balance of risks."
Traders return Monday looking for Trump's signature on the framework, or its absence.