Palm Oil Drifts Lower but Weather and Energy Keep Upside Alive
Palm oil futures eased slightly but stay above EUR 1,000/t. See how El Niño risks, biodiesel demand and firm energy markets shape the short-term outlook.
Prices
The August 2026 MDEX palm oil contract settled at MYR 4,521/tonne on 30 July, down 0.8% day-on-day. September 2026 closed at MYR 4,616/tonne (-0.26%), while November 2026 finished at MYR 4,684/tonne (-0.23%), confirming a mild pullback across the front months.
Converted at roughly 4.5 MYR per EUR, this places August, September and November 2026 futures around EUR 1,005, EUR 1,026 and EUR 1,041 per tonne, respectively. The curve remains upward-sloping into early 2027, with February–April 2027 contracts near MYR 4,760–4,770/tonne, implying only a modest carry and signalling continued concern over medium-term supply and demand tightness.
Supply & Demand
Seasonal production in Malaysia is currently in its upswing phase, which has contributed to the recent pause in price gains. June output rose month-on-month, and official and industry forecasts still point to a relatively tight 2026 balance sheet compared with historical norms, reflecting ageing plantations and limited new acreage.
On the demand side, traditional food-importing regions remain price-sensitive at current levels above EUR 1,000/tonne, and nearby futures have reacted to softer short-term buying interest. However, structural demand from biodiesel remains robust, with Indonesia pushing higher blending mandates and Malaysia under pressure to maintain competitiveness with regional peers, suggesting that energy-linked consumption will continue to absorb a large share of incremental supply.
Fundamentals & Weather
Fundamentally, the current futures strip around MYR 4,500–4,800/tonne aligns with recent analyst expectations that CPO prices will trade in a MYR 4,400–4,650 range in the near term, with upside risk should weather impacts intensify. Rising gasoil prices in July have also lent support, improving palm oil’s competitiveness in biodiesel formulas and keeping discretionary blending economically attractive.
Weather is the key wildcard. Meteorological agencies and market analysts warn that a strong El Niño is developing, with potential to significantly reduce fresh fruit bunch yields in Malaysia and Indonesia from late 2026 into 2027. For now, major Malaysian palm regions are still receiving adequate rainfall, and short-term forecasts show typical monsoon variability rather than acute drought, but the risk premium embedded in deferred futures reflects concern about yield losses in 2027.
Outlook & Trading Ideas
Given today’s mild correction and the still-elevated forward curve, the market appears to be consolidating within a high-price regime rather than signalling a trend reversal. The combination of seasonal production strength in Q3 2026 and mounting El Niño risks into 2027 argues for continued volatility with a modest upside bias, especially if energy markets stay firm and biodiesel mandates tighten further.
- End-users (food sector): Consider layering in coverage on dips near or slightly below EUR 1,000/tonne for Q4 2026–Q1 2027 needs, while keeping some flexibility for potential seasonal softness if production exceeds expectations.
- Biodiesel and industrial buyers: Maintain a higher-than-usual hedge ratio for early 2027, as El Niño-related supply risks and strong gasoil prices could push values above current forward levels.
- Producers: Use the firm 2027–2028 forward structure to lock in margins on a portion of expected output, especially where weather risk to yields is high.
3‑Day Price Indication (EUR)
Over the next three trading days, palm oil futures on MDEX are likely to trade sideways to slightly weaker in euro terms, with nearby contracts broadly expected to hold in a range around EUR 980–1,050/tonne, barring any sharp moves in energy markets or sudden weather headlines. Basis and local premia in destination markets should remain stable, reflecting the relatively balanced short-term physical market.