Palm Oil Futures Stay Firm as Gulf Crisis Fuels Biofuel Demand

Palm oil futures remain firm with a gently rising forward curve, supported by strong biofuel-linked demand despite a sharp correction in crude oil. The market is tracking gains in soyoil and other vegetable oils, with crude palm oil (CPO) on the Malaysian exchange holding above MYR 4,400/t across 2026–27. After a holiday pause, trading in Kuala Lumpur reopened with moderate gains, mirroring the strength in Chicago soyoil and resilient biodiesel demand. Vegetable oil markets overall are underpinned by the Gulf crisis, which has increased the economic attractiveness of biofuels even as crude oil has recently sold off on expectations of a US–Iran framework deal to reopen the Strait of Hormuz. Futures data show a firm, slightly upward-sloping palm oil curve, indicating that the market continues to price in tight fundamentals into 2027.

Prices & Curve Structure

Palm oil futures on the Malaysian derivatives exchange show a broadly firmer structure, with all actively traded 2026 contracts closing higher on 26 May. Nearby June 2026 settled at MYR 4,429/t, while the Aug–Dec 2026 strip trades around MYR 4,500–4,610/t with daily gains of 0.5–0.9%. Converting at an indicative rate of 1 EUR = 4.9 MYR, the core 2026 futures band currently corresponds to roughly EUR 880–940/t, keeping CPO historically elevated despite some recent consolidation in related markets. The firm forward curve signals that participants expect only limited relief on the supply side through 2026–27. External quotes for international palm oil futures are consistent with this picture, showing prices well above EUR 1,100/t equivalent for some deferred contracts, though with thinner liquidity in longer maturities.

Supply, Demand & Biofuel Linkages

The broader vegetable oil complex is currently driven by unusually strong demand for biofuels. The ongoing conflict in the Persian Gulf and partial disruption of crude oil flows have accelerated the use of biodiesel and HVO, increasing demand for feedstocks such as palm oil and soyoil. Market commentary highlights that the Gulf crisis has "led to greater use of biofuels worldwide", a key structural prop for palm oil prices. At the same time, palm oil’s traditional correlation with crude oil has loosened in the very short term. Brent crude has fallen around 4–5% in recent sessions on hopes for a US–Iran framework deal to end hostilities and reopen the Strait of Hormuz, stripping out part of the war risk premium. Yet, palm oil and other vegoils have held firm or even gained, as biofuel mandates and blending economics remain supportive with diesel cracks still elevated. Vegetable oil spreads also reflect competition between palm, soyoil and canola. Soyoil in Chicago closed about 1.2% higher mid-week despite the crude oil sell-off, underpinning the whole vegoil complex. Canola futures in Canada are supported by improved sowing conditions but also by attractive rapeseed margins, partially offsetting any potential increase in palm oil exports by supporting alternative oils at relatively high price levels.

Fundamentals & Positioning

On the supply side, recent data and analyst commentary point to only gradual production growth in Malaysia and Indonesia. Labour constraints and biological yield cycles are expected to cap year-on-year output gains in 2026 after strong 2025 production, keeping the balance sheet tight. Short-term, there are no signs of a bumper crop large enough to materially loosen the forward curve. Weather across the main palm oil belts of Malaysia and Indonesia is currently mixed but not acutely disruptive. Near-term forecasts indicate typical hot and humid conditions with scattered showers in key producing regions of Peninsular Malaysia and Borneo, without clear evidence of a widespread drought or flood event in the coming week. This neutral weather backdrop allows the demand side—particularly biofuels—to dominate price formation. Speculative and commercial positioning in related oilseeds also provides a bullish signal. Investors have expanded net long positions in European rapeseed futures, while commercial users have increased net shorts, reflecting active hedging against higher price risk further along the curve. This pattern suggests that industry participants see current high price levels as worth locking in, and that speculators are comfortable holding length across the vegetable oil complex.

Macro & Energy Market Context

The recent correction in crude oil is driven primarily by expectations of de-escalation in the Gulf rather than a sudden loosening of fundamentals. Futures curves in crude remain in backwardation, reflecting tight prompt supply even after the sell-off. For palm oil, this means that while downside shocks in energy prices can trigger short-term corrections, the structural driver of strong biofuel demand stays in place as long as liquids markets remain tight. Financial markets are also reacting to shifting risk sentiment. As traders reduce part of the war premium embedded in crude, some capital rotates into relative value opportunities within agriculture and biofuels, increasing liquidity and volatility in palm oil futures. Nevertheless, the modest, orderly rise of the palm oil forward curve suggests that for now, the market views current price levels as justified by fundamentals rather than purely speculative excess.

Short-Term Outlook & Trading Ideas

Over the next 1–2 weeks, palm oil prices are likely to remain supported in a broad band around EUR 880–950/t for the main 2026 contracts, with potential for further upside if crude oil stabilises or if weather risks in Southeast Asia increase. Any confirmation of a durable US–Iran deal could temporarily cap rally attempts via lower energy prices, but the underlying biofuel and food demand should limit downside. For now, the gently rising curve into early 2027, combined with still-tight supply expectations, argues for a cautiously bullish stance, especially on price dips driven by macro headlines rather than vegoil fundamentals.

• Producers: Use current strength in the 2026–27 strip to layer in additional hedges above EUR 900/t, especially for Q4 2026–Q1 2027 shipments, while keeping some volume open in case of weather-driven spikes.
• Consumers: Consider scaling into coverage on pullbacks toward the lower end of the recent range (near EUR 880/t) rather than chasing rallies, with emphasis on securing supply for late 2026.
• Traders: Look for relative value opportunities long palm vs. crude on days when oil sells off sharply on geopolitics but vegoil fundamentals remain unchanged; manage risk around key Gulf headlines and monthly stock/production reports.

3-Day Directional Price Indication (EUR)

• MDEX CPO nearby (Jun–Aug 2026): Slightly firmer bias, expected to trade roughly in a EUR 880–930/t equivalent band, with dips likely to attract buying.
• Deferred MDEX CPO (Nov 2026–Jan 2027): Stable to moderately higher, holding a premium of about EUR 20–40/t over nearby months as the curve remains gently upward sloping.
• International palm oil benchmarks: Directionally aligned with MDEX, but with slightly higher volatility due to thinner liquidity and sensitivity to crude oil headlines.