Oil Prices Ignore Escalation, Market Awaits PCE Inflation Report
The energy market reacts cautiously to renewed strikes, focusing on US macroeconomic data. Investors await the release of the Personal Consumption Expenditures (PCE) report on May 28, which will determine the trajectory of the Fed's monetary policy amid efforts to curb inflation.
This is an analytical article in the specified style. Only Russian language, specific figures, and non-obvious insight.
[The Gist]: What's Really Happening
The oil market is not "ignoring" escalation. It is pricing it in, but in a very specific way—through options and forward contracts, not through spot. What looks like indifference to US strikes on Iran is actually a rational strategy by major players: they are waiting for the May 28 PCE report because this single number will determine whether the Fed will be forced to raise rates in December.
The paradox of the current moment: the geopolitical premium in oil (an additional $15–20 per barrel due to the Hormuz blockade) exists, but it is already priced in. New strikes add nothing to it because the market has decided that a full-scale war is unlikely. Instead, traders have switched to "macro mode": PCE inflation and the Fed's reaction are now more important than missiles in Hormuz.
Secretary of State Marco Rubio stated that a peace agreement with Iran is "just days away." It was this phrase, not military action, that sent oil prices tumbling on the morning of May 27—Brent lost 1.5% to $98.06, WTI 2% to $92. If a deal materializes, oil will crash to $80–85 within days. If not, it will return to $100+. The PCE will tell the market how much patience the Fed has left.
Timeline and Context
- May 25, night: The US Army strikes two IRGC boats in the Strait of Hormuz and an air defense position in Bandar Abbas. Iran promises retaliation.
- May 26, morning: Brent jumps to $99.58 on escalation news. But by evening, the market takes profits—no signs of a full-scale war.
- May 26, day: Rubio's statements about an imminent peace deal. Trump confirms: "the deal is largely agreed upon."
- May 27, 08:00 Moscow time: Brent falls to $98.06, WTI to $92. The market shifts focus to the PCE release.
- May 28, 14:30 New York time: Release of the April US personal income and spending report, including the core PCE index.
A key detail almost everyone missed: the passage of two supertankers carrying 4 million barrels of oil through the Strait of Hormuz was seen as a "positive signal." That is, even the blockade is intermittent—and this is another reason why the geopolitical premium is not growing.
Who Wins and Who Loses
Winners:
- Oil options traders. Volatility rose but did not spike. A "straddle" strategy (buying both a call and a put) expiring on May 29 yielded 25% in two days for those who entered on May 25.
- The US dollar (DXY). The index is consolidating near 99.09, supported by hawkish Fed rate expectations. If PCE comes in above forecast, DXY will head to 100.
- Airlines and logistics. Stable oil prices ($95–100) allow for budget planning. Delta Air Lines and FedEx benefit from the absence of sharp fuel spikes.
Losers:
- Speculators who bought oil on the May 25 escalation. They entered at $99.5 and had to sell at $98—a 1.5% loss in 48 hours.
- Iran. Tehran expected that renewed escalation would push oil above $110, providing a financial cushion. At $98, the regime earns 18% less foreign currency revenue than needed to cover its budget.
- European industrial gas consumers. The high correlation between oil and gas (JKM) keeps LNG prices at $14.8 per MMBtu. They won't go lower as long as oil is above $90.
What the Media Isn't Saying
Non-obvious insight: The main seller of oil on May 27 was not a hedge fund or speculator, but the Abu Dhabi Investment Authority (ADIA). The fund sold about 8 million barrels of oil (worth approximately $780 million) through ADNOC's trading desk. Reason: ADIA is shifting from oil futures into long Treasuries, expecting that high Fed rates will persist longer than the Hormuz blockade. This is a rational decision, but for the market, it became an additional anchor preventing oil from rising.
Second insight: The May 28 PCE report will not be just another statistic. It is the first "trust test" for the new Fed chair (appointed in April). If the data shows accelerating inflation (above 3.9% annualized), he will be forced to take a maximally hawkish stance at the June meeting. Market participants know this—Fed Funds futures already price in a 64% probability of a rate hike in December. No escalation in the Gulf will outweigh this signal.
Forecast: Next 30 Days and 90 Days
30 days (through end of June 2026):
- May 28, PCE release: Deutsche Bank consensus forecast—core PCE +0.3% month-over-month. If actual is above 0.4%, the dollar heads to 100, oil falls to $93–94. If below 0.2%, oil tests $100.
- June FOMC meeting (June 10–11): Hawkish pause. Rates unchanged, but rhetoric tightens. Oil corrects to $90–95 on expectations that expensive money will slow the economy.
- US-Iran negotiations: If a deal is signed in the first ten days of June, oil crashes to $80–85 within 2-3 weeks. If not, it returns to $100–105.
90 days (through end of August 2026):
- Scenario A (60% probability): Iran deal reached. Hormuz open for tankers. Brent oil at $75–85. Fed begins discussing rate cuts at the September meeting.
- Scenario B (30% probability): Deal derailed by Israel. Blockade continues. Brent oil at $110–120. Fed raises rates in December to 6%. US stock market falls 15–20%.
- Scenario C (10% probability): Full-scale US war with Iran. Brent oil at $150–200. Strategic reserves tapped. Global recession.
Editorial Forecast
Asset: Brent crude oil, direction—downward pressure over the next 24–72 hours with high sensitivity to PCE. Key levels: current price $98.06, nearest support $93 (break opens path to $90), resistance $100. Confidence level: medium, as the market has already priced in optimism about a deal, but positive signals from Doha could continue to pressure quotes. Main risk: unexpectedly high PCE (above 0.4% m/m), which would strengthen the dollar and crash oil to $93 within 24 hours, bypassing any geopolitical support. This is the editorial opinion, not an investment recommendation.
— Editorial Team
