Palm Oil Edges Lower as Vegoil Complex Softens, Market Eyes MPOB Data

Palm oil futures are consolidating slightly lower after a strong early‑May rally, pressured by weaker soyoil, a firmer ringgit and expectations of higher near‑term production. The downside remains limited for now as energy prices and biodiesel policies continue to underpin the broader vegetable oil complex. Overall, the market is in a wait‑and‑see mode ahead of fresh Malaysian supply‑and‑demand figures. Traders are squaring positions after two consecutive down days in Malaysian futures, while heavy Brazilian soybean exports and weak US soyoil sales add cross‑pressure. At the same time, a looming shift toward El Niño later in 2026 keeps medium‑term supply risks in focus, preventing a sharper correction.

Prices & Forward Curve

Malaysian palm oil futures on the domestic derivatives exchange eased for the second session in a row. The actively traded July 2026 contract recently lost close to 1% and now trades around the equivalent of about USD 1,160 per tonne, following a prior spike above MYR 4,700 earlier this week. Recent settlement data show a mildly downward move across the 2026 strip: May to December 2026 contracts fell by roughly 0.1–0.5% on 8 May, with front months closing between MYR 4,486 and 4,541 per tonne. Further‑dated contracts into 2027–2028 cluster slightly below, around MYR 4,436, indicating a relatively flat to marginally backwardated curve.

At an indicative EUR/MYR rate of about 5.0, this places nearby 2026 futures in a range around EUR 900–910 per tonne. Recent commentary points to an average 2026 palm oil price expectation near MYR 4,200–4,300 per tonne (≈ EUR 800–860/t), with some analysts now targeting a move toward MYR 5,200 by mid‑July if biodiesel demand and energy prices stay firm.

Supply & Demand Drivers

The immediate pressure on palm oil comes from the broader vegetable oil complex. Weaker soyoil futures at the CBOT and selling in Chinese vegoil markets have weighed on sentiment, encouraging some profit‑taking in Malaysian contracts. At the same time, a stronger ringgit dampens export competitiveness and adds to the modest price correction. On the demand side, US weekly export statistics show very weak soyoil sales and softer soybean export bookings, signalling fragile global vegoil demand in the short term. Brazil, however, is flooding the world market with soybeans: April exports reached a record 16.2 million tonnes, and cumulative January–April shipments of 43.2 million tonnes already exceed last year’s level. This abundant Brazilian supply increases competition for palm oil in key destinations.

China remains the primary buyer of Brazilian soybeans, taking around 70% of shipments, with additional demand from Spain, Turkey, Thailand and Pakistan. For 2026, Brazilian exporters expect soybean exports to rise to roughly 110 million tonnes, a new record. This strengthens global availability of soybean oil and meal, structurally capping upside in palm oil unless weather or policy shocks tighten balances.

Fundamentals & Inventory Context

Malaysian palm oil fundamentals are in a transitional phase. Official data show that national stocks declined to around 2.7 million tonnes in February 2026 but remain high in a historical context, following a seven‑year high of just over 3 million tonnes at the end of 2025. Seasonal patterns and recent monthly production figures point to a gradual recovery in output from April onwards. Analysts expect inventories to stabilise in the near term and start rebuilding from May as the production uptrend gains traction and export growth moderates.

Despite this, price expectations for 2026 remain relatively firm. Sector reports and industry forecasts cluster around an average CPO price near MYR 4,200 per tonne, equivalent to roughly EUR 820 per tonne, with upside risk tied to weather‑related production shocks and biodiesel demand. Policy‑driven demand in Indonesia, particularly a planned move to higher biodiesel blending mandates from mid‑2026, could further divert crude palm oil from export channels, tightening the seaborne supply if implemented as scheduled.

Weather & Macro Backdrop

Climate indicators show the earlier weak La Niña phase is fading, with forecasts now pointing toward ENSO‑neutral conditions in the near term and a rising probability of El Niño developing between May and July 2026. For Southeast Asia, a transition to El Niño typically brings hotter and drier weather, which can stress oil palm yields later in the year if the event strengthens. Near‑term regional observations already highlight above‑normal temperatures and somewhat drier conditions in parts of maritime Southeast Asia, although precipitation patterns remain variable. This does not yet threaten 2026 production but heightens medium‑term risk for late‑2026 and 2027 output if soil moisture deficits accumulate.

Macro‑financially, palm oil remains closely linked to crude oil and energy markets via biodiesel economics. Firm energy prices support discretionary blending margins, particularly in Indonesia and Malaysia, and underpin expectations that some CPO volume will be absorbed domestically into fuel rather than exported, especially if policy targets such as B40/B50 are maintained or tightened.

Market Outlook & Trading Implications

• Short term (next 1–3 weeks): With MPOB’s fresh supply‑and‑demand data due shortly, futures are likely to trade range‑bound to slightly softer. Abundant Brazilian soybeans and weak US soyoil exports keep pressure on the vegoil complex, while high but easing Malaysian stocks limit downside extremes.
• Medium term (into Q3 2026): Seasonal production gains and rebuilding inventories argue against a sustained bull run without new catalysts. However, any confirmation of a stronger El Niño or faster‑than‑expected biodiesel drawdown of Indonesian and Malaysian stocks could shift sentiment bullish again, especially if energy prices remain elevated.
• Key risks: (1) Faster‑than‑expected demand slowdown in key importing regions (China, India) on macro weakness; (2) policy shifts in biodiesel mandates; (3) more aggressive competition from South American soybean oil if crush margins stay attractive.

Strategy Pointers

• Producers/ crushers: Consider incremental hedging on rallies toward the upper end of the recent MYR 4,700–5,000 range (≈ EUR 930–990/t) for Q3–Q4 2026, while keeping some upside open in case of weather‑driven supply shocks.
• Consumers/ refiners: Use the current pullback and relatively flat forward curve into 2027 to extend coverage selectively, focusing on front‑to‑mid 2026 where Brazilian soy availability is strongest and competition among vegoils is highest.
• Traders: Ahead of MPOB data, favour a tactical range‑trading approach, watching the spread between palm oil and soyoil as well as palm oil’s discount to gasoil. A confirmed El Niño signal combined with resilient energy prices would argue for a more structurally long stance later in 2026.

3‑Day Directional View (EUR‑linked)

• Bursa Malaysia (CPO futures, 2026 strip): Slightly softer to sideways in EUR terms, with current levels around EUR 900/t seen holding unless new bearish data emerge.
• EU vegoil complex: Mild downward bias in palm oil CIF quotations versus earlier in the week, reflecting the correction in Malaysian futures and continued competition from soybean oil.
• China Dalian vegoil contracts: Bias remains cautious, keeping a lid on any rapid EUR‑denominated upside for imported palm oil values in the very near term.