Palm Oil Futures Edge Higher, Market Balances Supply Recovery and Demand Risks

Palm oil futures on the Malaysian derivatives exchange are firmer along the curve, with the nearby June 2026 contract trading just above MYR 4,500/t, as the market balances recovering supply, biodiesel support and mixed import demand. After recent volatility driven by competing vegetable oils and macro sentiment, palm oil is stabilising in a slightly higher range. Futures on the MDEX show a modest upward bias from the front month through early 2027, while liquidity is concentrated in the August and September 2026 contracts. Fundamentally, Malaysian production has rebounded after earlier weather disruptions, stocks remain ample but not excessive, and biodiesel blending mandates in Indonesia and Malaysia provide a solid demand floor. However, softer Indian imports and the prospect of El Niño-related weather risks later in 2026 are tempering bullish enthusiasm.

Prices & Forward Curve

The MDEX palm oil curve on 19 May 2026 shows a gently rising structure from mid-2026 into early 2027, indicating a modest carry market rather than acute nearby tightness:

Converted approximately at EUR 1 = MYR 5.00, the actively traded nearby contracts correspond to roughly EUR 900–925/t, with the curve adding about EUR 20–25/t into early 2027. This mild contango reflects comfortable but not burdensome inventory levels and expectations of gradually rising production and costs. Recent research also notes that Malaysian CPO futures ended April near USD 1,155/t, consistent with the current MDEX levels once FX is taken into account.

Supply, Demand & Policy Drivers

Supply: Malaysian palm oil production rebounded sharply in April, up around 18% month-on-month to about 1.63 million tonnes as field operations normalised after holidays and earlier weather disruptions. Stocks edged higher but remain within a manageable range around 2.3 million tonnes, implying that the market is not facing immediate shortage but also not awash with excess oil.

Looking ahead, analysts expect Malaysian output to trend seasonally higher into Q3 2026, but annual production in 2026 may be flat to slightly lower year-on-year after a strong 2025 base. Indonesia’s production is also recovering, yet export flows are moderated by domestic biodiesel mandates and export levies, tightening net export availability compared with previous years.

Demand: On the demand side, India — the world’s largest palm oil importer — saw a sharp drop in palm oil imports in April, as refiners slowed purchases amid higher prices and competition from other oils. However, over the broader November–April period India’s total vegetable oil imports are still up year-on-year, with crude palm oil taking a larger share at the expense of refined products, indicating that structural demand remains robust even if monthly buying is volatile.

At the same time, Indonesia is preparing to roll out a B50 biodiesel programme from July 2026, while Malaysia moves toward B15 from June, both of which are expected to absorb additional palm oil into energy use and underpin baseline demand. Export competitiveness versus soybean and sunflower oil remains a key variable; recent weakness in Chicago soybean oil futures has occasionally pressured palm oil, but the current price gap still favours palm oil for many Asian buyers.

Fundamentals & Weather Outlook

Stocks and spreads: The slightly upward-sloping MDEX curve and small daily price gains of 0.2–0.5% across mid-2026 contracts point to a market that is fairly valued rather than squeezed. Intra-curve spreads suggest limited incentive to aggressively build or liquidate inventories at this stage. The recent series of down days earlier in the month, largely mirroring losses in soybean oil, appears to have met initial technical support around MYR 4,400–4,450/t, from which prices are now cautiously rebounding.

Weather and El Niño risk: Climate forecasters now see a high probability (around 80%+) that El Niño conditions will emerge between May and July 2026, following the fade-out of La Niña. For Southeast Asia’s palm oil regions, El Niño typically correlates with drier-than-normal conditions and potential yield stress, especially if the event strengthens into late 2026. While current field conditions in Malaysia have improved, the looming shift toward El Niño is likely to inject risk premium into deferred contracts if rainfall deficits begin to materialise later this year.

Short-Term Outlook & Trading Ideas

Market bias (next 1–4 weeks): With production recovering and stocks comfortable, but biodiesel demand and El Niño risks providing support, the palm oil market is likely to trade in a moderately firm but range-bound pattern. Nearby MDEX prices around MYR 4,450–4,600/t (roughly EUR 890–930/t) appear to be the current equilibrium, with downside limited by policy-driven demand and upside capped by competition from other oils and cautious buying from key importers.

• Producers / Sellers: Use the present firmness in the Aug–Nov 2026 strip (around MYR 4,550–4,580/t) to lock in a portion of forward sales, particularly if your cost base is comfortably below MYR 4,000/t. Consider layered hedging to keep some exposure to potential El Niño-driven rallies later in 2026.
• Refiners / Importers: For Asian and Middle Eastern buyers, stagger purchases over the coming weeks rather than chasing short-term rallies. Monitor the MYR 4,400/t level on nearby MDEX; dips toward or below this threshold could be opportunities to extend coverage into Q4 2026, especially if rival oils firm or freight costs rise.
• Speculators: The gentle contango and rising El Niño risk favour a cautiously bullish stance in deferred contracts (Q4 2026–Q1 2027), ideally via spread strategies (long deferred vs. short nearby) to reduce outright price risk and capture potential weather-related steepening of the curve.

3-Day Directional View (Key Exchanges, in EUR)

Based on current MDEX futures levels and prevailing FX rates, indicative palm oil values for the next three trading days are:

*CIF indication is an approximate conversion from futures plus typical basis and freight; actual traded levels will depend on quality, timing and logistics.