Palm Oil Edges Higher as El Niño Risk Looms over Comfortable Stocks

Palm oil futures on the Malaysian derivatives exchange are drifting modestly higher, with the active strip consolidating just above RM4,400/t as the market balances comfortable stocks and soft exports against tightening weather risks and strong biofuel-driven demand.

The forward curve remains slightly upward sloping into early 2027, but the carry is shallow, signaling neither acute tightness nor significant oversupply. Rising Malaysian inventories and substitution towards cheaper Indonesian product are capping rallies, yet guidance from key industry bodies and research houses continues to cluster around RM4,400/t as a fair value range. At the same time, a sharply higher probability of a strong El Niño is re-injecting weather premium into prices and could turn today’s mild backwardation risks into a more pronounced bull narrative if production starts to suffer.

Prices & Forward Curve

On June 16, 2026, nearby MDEX palm oil contracts posted moderate gains of around 0.3–0.5%, extending last week’s rebound after earlier weakness linked to softer exports. The July 2026 contract settled at RM4,430/t, while August 2026 closed at RM4,472/t, with successive months nudging gradually higher towards early 2027.

Further out, prices peak around RM4,610/t in February 2027 before easing slightly towards RM4,551–4,555/t by mid-2027 and stabilising near RM4,455/t for late-2028 maturities. This gentle contango suggests the market expects broadly stable fundamentals, with current price levels already embedding expectations for steady biofuel demand and some weather-related risk premium rather than anticipating a sharp structural shortage.

(EUR conversion based on an indicative rate of 1 EUR ≈ 5.1 MYR.)

Supply, Demand & Trade Flows

Malaysian fundamentals currently look comfortable. Official May 2026 data show palm oil end-stocks rising to about 2.43 million tonnes, up more than 5% month-on-month and over 20% year-on-year, as exports fell sharply and outweighed a seasonal dip in production. Total demand in May contracted by more than 13% m/m, underlining the near-term demand softness.

Export competition from Indonesia is a key drag on Malaysian prices. Recent figures indicate that Malaysian stockpiles have climbed at the fastest pace in five months as exports to key buyers like India and China have lost share to more aggressively priced Indonesian cargoes, particularly ahead of Indonesia’s tighter export monitoring system. While this weighs on nearby values and narrows the rally scope, it also helps keep palm oil globally competitive versus rival vegetable oils, supporting underlying demand in price-sensitive markets.

Fundamentals & External Drivers

Industry guidance still anchors expectations around current price levels. The Malaysian Palm Oil Council recently suggested that crude palm oil prices are likely to hold near RM4,400/t in June 2026, supported by robust biofuel mandates, notably record-high US Renewable Fuel Standard blending requirements for 2026–27 that should lift biodiesel and renewable diesel consumption.

More recently, market research has highlighted a steep increase in the probability of a strong or even severe El Niño in the coming months, prompting upward revisions to 2026–27 CPO price assumptions to roughly RM4,400–4,450/t. A pronounced El Niño typically brings hotter and drier conditions to parts of Southeast Asia, potentially curbing fresh fruit bunch yields and oil extraction rates with a lag. Given today’s already elevated stock levels, the short-term impact is psychological, but any evidence of yield loss into late 2026 could quickly flip sentiment more bullish.

On the cross-commodity side, soybean oil prices have been under pressure amid adequate global supplies, limiting upside in the vegetable oil complex as a whole. That said, palm oil remains one of the most competitively priced oils in key demand centres, particularly India, where palm olein still trades at a discount to Argentine soybean oil. This relative pricing advantage should underpin import demand once current de-stocking and substitution cycles run their course.

Weather & El Niño Outlook

Recent climate assessments indicate that El Niño conditions are already in place, with the probability of a strong event in 2026 rising sharply over the past month. For palm oil, the crucial question is the duration and intensity of dryness across key producing regions in Peninsular Malaysia, Sabah, Sarawak and Sumatra.

Short-term (next few weeks) weather forecasts still show mixed conditions, with intermittent rainfall reducing the risk of immediate stress. However, if El Niño strengthens into the second half of 2026, markets are likely to price in lower 2027 yield potential. For now, this risk is contributing to a modest weather premium but is not yet strong enough to justify a sustained breakout above the current RM4,400–4,500/t band without confirmation from field data.

Market & Trading Outlook

Overall, the palm oil market sits in a delicate balance: inventories are comfortable and exports soft, yet the forward curve and recent analyst revisions point to a floor forming near current levels, supported by structural biofuel demand and looming weather risk. Nearby contracts are likely to remain sensitive to any news on Indonesian export policy implementation and fresh export demand from India and China.

• Producers / Sellers: Consider using the current RM4,400–4,600/t range (≈ EUR 860–910/t) to extend hedges selectively for late-2026 delivery, especially if local rainfall starts to trend below normal, as El Niño could tighten balances later.
• Importers / Buyers: Gradually scale in coverage for Q3–Q4 2026 on dips towards RM4,300–4,350/t (≈ EUR 835–850/t), while keeping some flexibility for potential corrections if Indonesian export competition remains intense.
• Speculators: The shallow contango and rising weather premium favour a mildly bullish bias, but with rising stocks and export headwinds, a strategy focused on buying short-dated dips rather than chasing rallies appears more prudent.

3‑Day Directional View (in EUR terms)

• MDEX nearby (benchmark for CIF Europe): Slightly firmer bias; expected to trade roughly in a band equivalent to EUR 850–900/t as the market digests higher stocks but stays alert to El Niño headlines.
• FOB Malaysia indications: Stable to marginally higher in EUR, supported by firmer futures and currency moves, but capped by aggressive Indonesian offers.
• Delivered Northwest Europe: Largely range-bound, tracking MDEX and freight, with limited scope for a strong break in either direction over the next three sessions absent a weather or policy surprise.