Brent crude falls to $105.02

Brent crude fell to $105.02 a barrel on Wednesday, May 20, after President Donald Trump said the administration was in the “final stages” of talks with Iran, according to CNBC. U.S. crude also dropped below $100, with West Texas Intermediate settling at $98.26 a barrel, CNBC reported. The move in oil fed into Treasurys, where yields eased after a run-up tied in part to energy-driven inflation concerns. By the time investors were parsing the latest Federal Reserve minutes, the 2-year Treasury yield had slipped to about 4.05%, Benzinga reported. ### Why did oil fall so abruptly on May 20? President Donald Trump triggered the move when he said talks with Iran were in the “final stages,” CNBC reported on May 20. That comment shifted attention from supply disruption risk toward the possibility of de-escalation in the Middle East, which had been a major driver of the recent jump in crude. CNBC reported that Brent futures lost more than 5% to settle at $105.02 per barrel, while WTI futures fell more than 5% to close at $98.26. A separate CNBC market report said Brent had pulled back 5.63% on the day after Trump’s remarks, citing a pool report on his comments. ### What did the market hear in Trump’s Iran comments? Trump said earlier in the week that he had called off renewed military strikes against Iran to allow more time for diplomacy, CNBC reported. CNBC also reported on May 19 that Trump told reporters Iran had “two or three days, maybe Friday, Saturday, Sunday, something, maybe early next week” to agree to a deal. Those remarks mattered because oil had been trading well above $100 on fears that a wider conflict could disrupt flows, including through the Strait of Hormuz. When traders saw a possible diplomatic path, futures repriced lower. ### How did the oil move spill into Treasury yields? Benzinga reported that WTI crude fell roughly 4.4% to $98 a barrel, helping pull Treasury yields lower across the curve. The same report said the 2-year yield slipped to 4.05%. CNBC separately reported that the 10-year Treasury yield dropped more than 9 basis points on Wednesday and the 30-year yield fell more than 6 basis points as investors absorbed both the oil decline and the Fed minutes. Earlier in the week, CNBC had reported the 30-year yield touched 5.197%, its highest level since July 2007, before retreating. ### Why were bond traders so focused on oil? Federal Reserve officials linked inflation risks to the Middle East conflict in minutes from their April 27-28 meeting, according to CNBC and Benzinga. Benzinga said several participants warned that prolonged inflation above 2% could increasingly affect wage- and price-setting behavior, while almost all acknowledged the risk that the conflict could keep oil and other commodity prices elevated. That made crude a direct input into rate expectations. When oil dropped on May 20, some of the immediate pressure on inflation expectations eased, and Treasury yields moved lower. ### Did the drop in oil end the broader inflation concern? CNBC reported on May 21 that Treasury yields resumed climbing as traders continued to monitor inflation risks, even after the previous session’s pullback. The network said a majority of Fed officials saw the possibility that rates might need to rise if the Iran war pushed inflation higher. Oil also remained volatile. CNBC reported on May 21 that prices extended losses as investors continued to monitor U.S.-Iran talks, showing that the market was still trading on headlines tied to diplomacy and supply risk. May 21 trading and any further comments from Trump or Iranian officials are the next concrete markers for markets, alongside Treasury moves after the Fed’s April 27-28 minutes. (cnbc.com)