Palm oil prices fell from a near one-month high, as weakness in crude oil and soybean oil undermined biofuel demand. Futures dropped as much as 0.9% to 4,602 ringgit, nearly erasing gains from the previous day.
The decline followed a two-day rise in benchmark Brent crude, which dipped as Middle East tensions persisted and U.S.-Iran hostilities continued. Chicago soybean oil remained flat after a Monday decline, with traders linking the slump to broader energy market pressures.
Market Dynamics and Crude Oil Influence
Weakness in soybean oil and crude oil is what is driving market sentiment today,
said David Ng, a senior trader at IcebergX Sdn Bhd. This sentiment rippled through palm oil futures, which fell to 4,602 ringgit, nearly erasing the prior day’s gains. The Dalian Commodity Exchange also saw lower palm oil prices, compounding bearish pressure.
Brent crude’s retreat came despite a two-day rally, as mediators attempted to broker a Middle East truce. The U.S. and Iran’s ongoing tensions further weighed on energy markets, indirectly affecting biofuel demand. This interplay between crude prices and palm oil futures highlights the sector’s sensitivity to global energy dynamics.
Lower palm oil prices on the Dalian Commodity Exchange added to the bearishness, Ng said. Weakness in soybean oil and crude oil is what is driving market sentiment today,
he reiterated, emphasizing the interconnectedness of the commodity complex.
Export Data and Supply Outlook
Malaysia’s palm oil exports were estimated to have increased 4% between July 1 and 20 from a month earlier, according to data from cargo surveyor Intertek Testing Services. While this suggests strong demand, analysts warn that rising stockpiles in producing nations could pressure prices. A Bloomberg Intelligence report noted that Malaysia’s inventories are set to hit record highs this year, driven by production outpacing exports.
Malaysia’s palm oil exports were estimated to have increased 4% between July 1 and 20 from a month earlier, according to data from cargo surveyor Intertek Testing Services. The surveyor’s findings contrasted with the broader market’s bearish outlook, as rising inventories in producing nations, including Malaysia, pose a downside risk.
The outlook remains mixed. Despite El Niño’s potential to create hot, dry conditions—especially next year—output is expected to exceed 20 million tonnes. This imbalance between supply and demand underscores the volatility facing palm oil traders, with inventories acting as a key downward risk.
Malaysia’s inventories are set to swell to a record high this year as production outpaces exports, according to a Bloomberg Intelligence report. Annual output could top 20 million tonnes despite the onset of El Niño, which leads to hot and dry conditions, with the impact likely more acute next year, it added.
Technical Analysis and Price Targets
Reuters cited technical analysis suggesting the contract could drift back toward 4,580-4,600 ringgit after failing to clear resistance around 4,665. Biodiesel’s price advantage is waning, which weakens the incentive for discretionary blending and can take some of the marginal demand out of palm,
a source noted in the report. This dynamic leaves futures more reliant on the broader “food oils” complex for direction.
Technical resistance was noted at 4,665 ringgit, a level palm oil futures failed to surpass. This suggests the price may struggle to break higher without stronger support from crude or biodiesel demand. The 4,580-4,600 ringgit range could act as a near-term floor if energy prices continue to slide.
Weakness in Dalian soybean oil can feed through to Malaysia faster when biodiesel demand is less supportive. This explains why the 4,665 ringgit level Reuters highlighted may be harder to break, and why the 4,580-4,600 ringgit zone can act like a near-term magnet when energy prices are sliding.
Surveyors offered conflicting reads on Malaysia’s July 1st-20th shipments, adding noise to the market. While some reported a 4% increase in exports, others hinted at slower activity, creating uncertainty about demand trends.
El Niño Risk and Future Outlook
Malaysia’s meteorological department warned that El Niño could bring unusually high temperatures next year, posing a risk to palm oil yields. While this is a longer-term concern, it adds uncertainty to production forecasts.
The combination of weak crude prices, rising inventories, and El Niño risks creates a challenging environment for palm oil. Traders will be watching key levels like 4,665 ringgit closely, with the 4,580-4,600 range acting as a potential support zone. Palm oil is back to behaving like a pure “relative value” trade against rival oils.
Malaysia’s meteorological department warned that El Niño could bring unusually high temperatures next year, a potential risk for yields. This warning underscores the fragility of production forecasts amid climate uncertainties.
At 4,610 ringgit a ton, palm oil sits at the intersection of two demand pools: food and fuel. When crude softens, it can squeeze biodiesel margins, meaning palm loses some support from fuel demand and starts behaving more like a pure “relative value” trade against rival oils. That matters most for short-term pricing: weakness in Dalian soybean oil can feed through to Malaysia faster when biodiesel demand is less supportive.
Sources: Bloomberg, The Edge Malaysia.
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