Palm Oil Futures Hold Above RM4,500 as El Niño and Biofuel Keep Market Tight

Palm oil futures on the Malaysian derivatives exchange are grinding higher in a shallow contango, with active 2026–27 contracts clustered around MYR 4,500/t as weather risk and rising biodiesel demand offset softer reference prices and patchy import buying. The market is pricing in a structurally tighter 2026–27 balance under emerging El Niño conditions, keeping downside limited despite recent adjustments to Indonesia’s CPO reference price.

The forward curve shows modest day-on-day gains and a gently rising structure into early 2027, signalling expectations of firmer values as potential yield losses materialise. Near-term fundamentals are mixed: Indonesia has trimmed its July CPO reference price on weaker demand from India, yet physical MDEX-linked prices remain buoyant, supported by stronger rival vegoils, active biodiesel policies and persistent geopolitical support via higher energy prices. Overall, the risk skew for the next 6–12 months remains to the upside, with corrections likely to attract hedging and consumer buying.

Prices & Forward Curve

Latest MDEX data for July 7, 2026 show a firm upward bias across the palm oil strip. Front-month July 2026 settled at MYR 4,500/t, up 0.33% on the day, while the actively traded August 2026 contract closed at MYR 4,540/t (+0.37%). Further along the curve, November 2026 finished at MYR 4,612/t (+0.39%), and January 2027 at MYR 4,654/t (+0.39%). Total volume across listed maturities exceeded 10,000 lots, underscoring healthy liquidity.

The curve is in shallow contango, with prices gradually rising from around MYR 4,485/t (July 2026) toward MYR 4,650–4,660/t (early 2027) before easing slightly into later 2027. This structure is consistent with market expectations of tighter fundamentals in 2026–27, but not yet a pronounced supply shock. Physical CPO for July South has been reported around MYR 4,520/t, broadly in line with futures, indicating limited near-term basis stress.

*EUR conversion based on an indicative rate of 1 EUR ≈ 5.1 MYR; values are approximate.

Supply, Demand & Policy Drivers

On the supply side, Malaysian and Indonesian output for marketing year 2026–27 is increasingly exposed to El Niño-linked dryness. Recent analysis highlights downside risks to Malaysian fresh fruit bunch yields as El Niño intensifies from mid-2026 into 2027, with USDA projections already trimming 2026–27 production and pointing to lower ending stocks.

At the same time, policy-driven demand is tightening regional availability. Indonesia has raised its biodiesel blending target to B50 from July 2026, diverting additional crude palm oil into domestic fuel use, while Malaysia is progressing toward B15, further anchoring internal consumption. These mandates collectively absorb a growing share of Southeast Asian production and reduce exportable surplus, particularly if yields falter under prolonged heat.

Contrasting this, Indonesia has lowered its July 2026 CPO reference price to around USD 1,001/t (roughly EUR 920/t), reflecting softer global demand and weaker buying from key importer India. This adjustment moderates export taxes and levies, facilitating flows but also signalling that import demand is not yet running hot despite structural tightness.

Fundamentals & External Influences

Fundamentally, palm oil remains underpinned by its price relationship to rival vegetable oils and energy markets. Recent sessions have seen CPO futures supported by gains in soybean oil on the CBOT and palm olein on China’s Dalian exchange, reinforcing palm’s competitiveness in edible oil blends.

Global refined palm olein prices have softened since Q1 2026 as supply chains normalised and import demand in China and India moderated, but the emerging El Niño narrative is shifting focus from current stocks to prospective 2027 output. Analysts increasingly expect CPO prices to remain elevated through late 2026 and potentially peak in early 2027 if weather-driven yield losses coincide with higher biofuel blending and firm energy prices linked to ongoing geopolitical tensions.

Weather Outlook for Key Regions

Climate agencies and recent market research highlight a high probability (around 80–90%) that the current El Niño will strengthen over the coming months, with potential peak intensity between July and September 2026. For oil palm belts in Malaysia and Indonesia, this raises the risk of below-normal rainfall and elevated temperatures into 2027, conditions typically associated with lagged declines in fresh fruit bunch yields and oil extraction rates.

While short-term rainfall readings across some plantation zones remain close to seasonal averages, forward-looking indicators suggest increasing downside risk to 2027 production. Markets are already beginning to price this, as evidenced by the firmer section of the 2027 curve around MYR 4,550–4,650/t despite only modest near-term demand growth.

Trading Outlook & Near-Term Price Indications

• Producers: With the curve above MYR 4,500/t (~EUR 880/t) into early 2027 and El Niño risk mounting, incremental forward hedging on price rallies appears prudent, especially for 2026–27 output. Focus on scaling in sales on tests toward the upper band of recent forecasts (MYR 4,600–4,650/t).
• Consumers (refiners, food and oleochemical users): Given structural tightening from biodiesel mandates and weather uncertainty, consider layering in coverage on price dips toward the low MYR 4,400s rather than waiting for a major correction that may not materialise if El Niño intensifies.
• Speculators: The risk-reward favours a mildly bullish bias, but with volatility likely to rise around weather headlines and monthly supply data. Strategies that monetise range trading (e.g., selling downside volatility while holding some upside exposure) may be attractive in the current shallow-contango environment.

3-Day Directional View (Indicative, in EUR)

• MDEX front month (CPO Jul/Aug 2026): Bias mildly higher in the next three sessions, with an indicative range around EUR 870–900/t, supported by strong vegoil complex and ongoing weather risk.
• Q4 2026 strip (Oct–Dec 2026): Expected to hold a small premium over nearby months near EUR 895–915/t, reflecting tighter forward balance as El Niño risk is capitalised into prices.
• Early 2027 (Jan–Mar 2027): Stable-to-firmer tone near EUR 900–920/t; any pull-backs are likely to attract commercial hedging interest, limiting sustained downside.