Palm Oil Market Surges Amid Tight Supplies and Weather Uncertainty: A Current Analysis

The palm oil market is experiencing a notable upswing as futures on the Bursa Malaysia Derivatives Exchange (MDEX) notched solid gains this week. July 2025 contracts settled at MYR 3,986 per tonne, up 1.18%, with near-term contracts rising in unison amid robust trading volume. This positive momentum reflects tightening supplies and persistent concerns about adverse weather in key producing regions. With palm oil being the world’s most traded vegetable oil, driving both food and biofuel sectors, recent trends indicate deepening market volatility as traders balance supply-side constraints with shifting global demand. Key drivers this week include sharply lower stocks in Malaysia and Indonesia, further impacted by weaker-than-expected production numbers and strong domestic and export demand.

Meanwhile, dryness in parts of Southeast Asia—a result of ongoing El Niño effects—has led to weather-related anxiety throughout the sector. The interplay between stronger edible oil prices, currency fluctuations, and government policies in top-producing countries further complicates the outlook for price direction and trading sentiment. This report provides an in-depth look at the current market landscape, integrating fresh exchange data, supply and demand analysis, weather forecasts, and actionable trading insights for stakeholders across the palm oil supply chain.

📈 Prices & Market Sentiment

Contract Month	Closing Price (MYR/t)	Weekly Change (%)	Sentiment
Jul 25	3,986	+1.18%	Strong/Bullish
Aug 25	4,005	+1.17%	Firm/Bullish
Sep 25	4,011	+1.15%	Firming
Oct 25	4,011	+1.05%	Supported
Nov 25	4,017	+0.97%	Stable
Dec 25	4,031	+0.92%	Stable

🌍 Supply & Demand Dynamics

• Production: Ongoing dryness in Indonesia and Malaysia is limiting palm fruit yields. April-May production in Malaysia was reported lower YoY, with Indonesia also facing similar trends due to El Niño-led rainfall deficits.
• Stock Levels: Malaysian palm oil inventories fell below key psychological thresholds, with ending-May stocks reported at their lowest level in over a year. Exports rose, especially to India and China, offsetting slower demand in the EU.
• Demand: Indian and Chinese purchases remained robust, while biofuel demand is growing steadily, especially after recent policy incentives in Southeast Asia.
• Competing Oils: Firm soybean and sunflower oil prices on the Dalian and CBOT exchanges added upside impetus.

📊 Market Fundamentals

Country	2023 Production (MMT)	2023/24 Expected Stocks (MMT)
Indonesia	46.5	4.1
Malaysia	18.5	1.5
India (Import)	—	2.2
China (Import)	—	1.7

• USDA & MPOB Reports: Both agencies project a contraction in global palm oil inventories over the summer.
• Speculative Positioning: Managed money flows remain net long on the Bursa, signalling positive sentiment.

⛅ Weather Outlook & Impacts

• Malaysia: Local forecasts indicate below-average rainfall and above-normal temperatures in Peninsular Malaysia and Sarawak for the next two weeks, heightening concerns about oil palm fruit ripening and stressed trees.
• Indonesia: Some relief as scattered showers return to Sumatra, but Kalimantan and Sulawesi remain dry, risking output spikes and replanting delays.
• Potential Yield Effects: Production recovery is likely limited in Q3 unless rainfall normalises by late July.

🌏 Global Production & Stock Comparison

Region	Production Outlook	Stock Trend
Indonesia	Flat	Declining
Malaysia	Declining	Declining
India	Growing Imports	Stable
China	Growing Imports	Increasing
EU	Flat	Lower

📆 Trading Outlook & Recommendations

• Producers: Hold for potential further price upside—tight supplies and weather risks remain. Consider forward-sell portions as contracts approach MYR 4,100-4,150.
• End users: Secure forward coverage through Q4 2025. Upside price risks persist if dry conditions intensify.
• Traders: Watch for corrections if rainfall improves or external edible oil markets soften. Speculative longs may unwind profitably in near-term rallies.
• Monitor: Weekly MPOB/USDA updates, Indian import policy news, and Dalian soybean oil prices for cues.

🔮 3-Day Regional Price Forecast (MDEX)

Date	Expected Price Range (MYR/t)	Sentiment
27 June 2025	3,980 – 4,030	Bullish/Firm
28 June 2025	3,970 – 4,020	Stable, slight upside
29 June 2025	3,970 – 4,060	Volatile; weather watch