[Summary]
The big thing in the market on May 21, 2026 is the sharp drop in crude oil prices.
With US President Trump's recognition that negotiations with Iran are in the "final stages," the war premium that had been riding on oil prices has suddenly disappeared. WTI futures fell $5.89 to $98.26 in the U.S. market on May 20, while Brent futures fell $6.26 to $105.02.
The current decline is not due to a sudden surplus in supply. In fact, EIA's weekly statistics show that U.S. crude oil inventories fell by 7.9 million barrels in the week ending May 15. Actual demand remains tight.
In other words, the recent drop in crude oil prices should not be seen as a ``deterioration in supply and demand,'' but as an ``unwinding of the geopolitical premium.''
This is basically a tailwind for the Japanese market. Low oil prices improve terms of trade, lower fuel costs, and ease inflationary pressures. On the other hand, INPEX (1605), oil wholesalers, and resource trading companies are likely to face short-term headwinds.
Crude oil price: war premium coming off
The current sharp drop in crude oil is a fairly typical unwinding of geopolitical markets.
Due to tensions over the Strait of Hormuz and the situation in Iran, there was a supply premium on crude oil. However, with the announcement that negotiations between the US and Iran were in the final stages, the market suddenly began pricing in a ``worst-case scenario regression.''
The main prices can be organized as follows.
| Indicators | Latest guideline | Perspective |
|---|---|---|
| WTI crude oil | $98.26 | Breaks below the psychological milestone below $100 |
| Brent crude oil | $105.02 | Geopolitical premium peels off with nearly 6% decline |
| EIA US crude oil inventories | Decrease of 7.9 million barrels | Actual demand still appears to be tightening |
The key point is that crude oil prices have fallen even though inventories have decreased significantly.
This does not indicate weakness in supply and demand, but rather indicates that the impact of geopolitical headlines was just as large. In other words, the oil market is not yet driven by fundamentals alone.
WTI short-term range
WTI has fallen below $100, making short-term views more likely to change.
The immediate focus is on whether the price will stop declining at around $98, or whether it will clearly break below the $97 level.
103
95 / 103
97 / 95 / 92However, it cannot be said that prices will go down unilaterally from here.
EIA inventories decreased by 7.9 million barrels, and US crude oil inventories are tightening. If the negotiations break down or the Strait of Hormuz risks flare up again, there is ample chance for a sharp rebound towards $105.
Crude oil is currently more sensitive to diplomatic headlines than supply and demand. This is a very difficult market to play.
Impact on Japanese stocks
Low oil prices are basically a positive thing for Japanese stocks.
Japan is an energy importing country, and high crude oil prices will push up corporate costs and household budget burdens. On the other hand, if the price of crude oil falls, it is likely to improve the terms of trade, lower the burden of fuel costs, and ease inflationary pressures.
Furthermore, in the US market, the Dow Jones Industrial Average rose by $645. As upward pressure on US long-term interest rates eased and concerns about rising crude oil prices subsided, investors became more risk-on.
Regarding Japanese stocks, the view is as follows.
| Sector | Impact | Reason |
|---|---|---|
| Air/land transportation | Plus | Lower fuel cost burden |
| Electricity/Gas | Plus | Expected reduction in fuel procurement costs |
| Retail/restaurant | Plus | Expectation of easing in logistics costs and raw material inflation |
| Semiconductors/AI | Plus | NVIDIA's strong financial results and risk-on are tailwinds |
| Mining and oil development | Negative | Earnings expectations fall due to falling crude oil prices |
| Oil wholesaler | Slightly negative | Caution regarding inventory evaluation and margins |
| Trading company | Mixed | Low resource prices are a headwind, non-resources and returns are supportive |
The most obvious aspects of this current situation are sectors that have been suffering from high crude oil prices, such as air transportation, land transportation, retail, dining out, and electricity/gas.
On the other hand, INPEX and oil wholesalers are more likely to take profits as they were bought at high crude oil prices.
Combination with NVIDIA financial results
What is important for Japanese stocks this time is not just low oil prices.
At the same time, NVIDIA's first quarter financial results for fiscal year 2027 were announced, with strong sales of $81.615 billion, data center sales of $75.2 billion, and Q2 sales forecast of $91 billion.
In other words, Japanese stocks are experiencing two tailwinds at the same time.
Key point
→ Key point
NVIDIAstrong earnings
→ semiconductorsKey pointThis is quite large.
The former is effective for lowering costs in areas such as air transportation, land transportation, electricity, retail, and eating out. The latter is effective for AI semiconductor companies such as Tokyo Electron, Advantest, Disco, and Lasertec.
The market as a whole is in a risk-on position.
Foreign exchange: This is a factor in the appreciation of the yen, but it is unlikely to take effect immediately
Low crude oil prices are essentially a factor in the appreciation of the yen.
This is because Japan's energy imports will decrease, leading to expectations for a reduction in the trade deficit. Particularly when crude oil prices remained high, the burden of energy imports was part of the pressure on the yen.
However, exchange rates are not simple.
When U.S. stocks rise and Japanese stocks also receive risk money, the yen is not necessarily bought in large quantities right away. If the dollar-yen exchange rate remains high in the high 158-yen range, the pressure on the yen to appreciate due to low crude oil prices may take effect after a few days delay.
In the short term, the outlook for the dollar-yen is as follows.
| Level | View |
|---|---|
| Approaching 160 yen | Caution for intervention, risk of weakening yen |
| 158 yen level | Risk-on and strong yen factors are in a tug of war |
| 156 yen level | Signs that low crude oil prices and lower US interest rates are starting to take effect |
Investment strategy
What is important in this market is not to simply read low oil prices as a ``deterioration of the economy.''
The recent drop in crude oil prices is not a result of a decline in demand but a drop in the geopolitical premium. If you get this wrong, you will fail to read the risk-on nature of the stock market.
In the short term, the outlook is as follows.
| Strategy | Target | View |
|---|---|---|
| Advantages of low crude oil prices | Air transportation, land transportation, retail, dining out, electricity and gas | Review with expectations for cost reduction |
| AI risk-on | Semiconductor equipment, AI infrastructure | Buyback based on NVIDIA's strong financial results |
| Disadvantages of low crude oil prices | INPEX, oil wholesalers, resource stocks | It is easy to take profits when crude oil declines |
| Currency confirmation | Export stocks, domestic demand stocks | What you look for depends on whether the yen will remain weak or the yen will appreciate |
Personally, what I want to see most is whether ``stocks that benefit from low oil prices'' and ``semiconductor stocks'' will be bought at the same time.
If these two things move at the same time, Japanese stocks will be quite strong. On the other hand, if only semiconductors are bought and domestic demand does not keep up, the index tends to lead to a lopsided rise.
Risk
The biggest risk is that negotiations with Iran could become strained again.
The current drop in crude oil prices is driven by expectations for progress in negotiations. Until an actual deal is reached, geopolitical risks will not disappear.
There are three points to be careful of.
- Sharp rebound in crude oil prices due to failed negotiations
- Re-emergence of Strait of Hormuz risks
- Short-term overheating of stocks that benefit from low oil prices
In particular, crude oil prices can sometimes rebound sharply with a single headline the day after a drop. While we are looking towards the $95 direction, we should always assume a return to $105.
Summary
What is happening in the market on May 21st is a drop in the war premium.
WTI has fallen below $100, and Brent has fallen to the $105 level. The fact that the EIA inventory has declined by 7.9 million barrels indicates that the main reason for this decline is not a deterioration in supply and demand, but a decline in geopolitical risks.
This is basically a tailwind for Japanese stocks. Low crude oil prices are positive for domestic demand stocks, air transportation, land transportation, electricity, retail, and restaurants. NVIDIA's strong financial results are positive for semiconductor and AI-related industries. On the other hand, there will be a short-term headwind for INPEX and oil wholesalers.
The focus from now on is whether crude oil will move into a new range of $95 to $103, or whether it will fall back toward $105 if negotiations break down.
If the recent drop in crude oil prices does not turn out to be a fraud, there is a possibility that the downside value of Japanese stocks could rise significantly.
Reference information
- Newsweek Japan edition "Crude oil futures fall 6%, Trump says 'negotiations with Iran are in final stage'" https://www.newsweekjapan.jp/articles/-/323087
- AP “US stocks rally after pressure eases from the bond market and oil prices fall” https://apnews.com/article/351c7434b9875516e61e8917f960fc13
- Investing.com “U.S. crude stockpiles fall 7.9 million barrels, EIA reports” https://ng.investing.com/news/commodities-news/us-crude-stockpiles-fall-79-million-barrels-eia-reports-93CH-2521772