Palm Oil Futures Lifted by Energy Rally and Biodiesel Hopes, but Stocks Loom

Palm oil futures are trading higher along the forward curve, supported by stronger energy markets and biodiesel demand expectations, but ample vegetable oil supplies and rising stocks are likely to cap sustained rallies. After last week’s gains, the broader oilseed complex has turned mixed: palm oil and related contracts remain firm, while soybeans in China and canola in Canada are easing on better crop prospects and harvest pressure. Rising rapeseed production in Australia and improved canola availability in North America increase competitive pressure on palm-based oils in food and feed uses. At the same time, escalating tensions in the Persian Gulf have pushed crude oil higher, improving biodiesel economics and underpinning palm oil through its energy-linkage. Weather risks tied to a strengthening El Niño and the approaching Southeast Asian monsoon add a weather risk premium but with a highly uncertain production impact for 2027.

Prices

MDEX crude palm oil futures on 28 August 2026 show a firm, slightly upward-sloping curve. The nearby September 2026 contract settled at MYR 4,628/t, with deferred positions gradually rising toward MYR 5,100–5,200/t into early 2027, before flattening around MYR 4,912/t in the far-dated 2028–2029 positions based on indicated settlement levels. Converted to EUR (≈MYR 5.0 = EUR 1.0), near-term prices are trading around EUR 925–1,025/t, placing palm oil at a discount to European rapeseed oil but at a premium to some Indonesian reference values. Recent data from Bursa Malaysia Derivatives confirm that front-month CPO has rebounded above MYR 4,600/t, supported by firmer crude oil and expectations for higher biodiesel use in Indonesia’s B50 programme.

*Indicative, very low volume in far-dated contracts.

Supply & Demand

The oilseed complex signals comfortable overall vegetable oil availability. Australian authorities have raised their 2026/27 rapeseed (canola) crop forecast to 7.3 million tonnes, around one-third above the 10‑year average, with exports projected at 5.4 million tonnes due to high beginning stocks. This points to abundant rapeseed oil export potential into the EU, intensifying competition with palm oil in food and industrial applications. In Canada, harvest progress in canola has triggered farmer selling and pressured ICE canola futures, with the November contract recently easing to roughly EUR 506/t. Together with firmer expectations for Black Sea oilseed flows, this broader oilseed softness limits upside for palm oil despite its own positive drivers. Meanwhile, soybean export loadings from the US have slowed year-on-year, indicating generally softer global protein and oilseed demand, although fresh private sales still point to underlying baseline buying interest. On the palm oil side, Malaysia’s production and stock numbers underline a balanced but not tight market. MPOB data show July CPO output up about 9% month‑on‑month, exports up roughly 14%, and stocks rising around 7%, leaving inventories at multi‑month highs. A Reuters-based survey suggests August stocks likely climbed further to a three‑month high as production outpaced exports, though healthy demand has so far prevented an outright glut. Demand-wise, Indonesia’s decision to raise its palm-based biodiesel allocation for 2026 to 16.75 million kilolitres reinforces structural support for domestic consumption, freeing more Malaysian volumes for export but also reducing the overall pool available to the global market. Seasonal restocking in key importing markets, particularly ahead of Deepavali in India, offers additional near-term demand, although high vegetable oil stocks in consuming regions could temper buying on rallies.

Fundamentals & Cross-Market Links

Energy markets are a central driver. Recent escalation of military tensions in the Persian Gulf has lifted crude oil prices by more than 2%, raising gasoil values and improving the economics of biodiesel blending. This, in turn, supports palm oil as a biodiesel feedstock, especially in Indonesia and Malaysia where blending mandates (such as B50) are being implemented or expanded. However, palm oil’s upside is constrained by the broader oilseed and vegetable oil complex. Cheaper soybeans in China’s Dalian market and weaker ICE canola, driven by good crop prospects and harvest selling pressure, weigh on competing oils and meal values. This dynamic encourages some substitution away from relatively more expensive palm oil in price-sensitive markets, particularly when palm retains a premium over certain regional benchmarks. In Europe, the prospect of improved rapeseed flows from both Australia and Ukraine—if Black Sea shipping conditions continue to normalise—adds to the bearish oilseed narrative for 2026/27. The expectation of enhanced availability of rapeseed, rapeseed oil and meal into the EU weighs on rapeseed prices in Paris and indirectly challenges palm oil’s share in industrial, biodiesel and food formulations.

Weather & El Niño Outlook

Weather remains a critical medium-term uncertainty. Global climate centres, including NOAA and the World Meteorological Organization, indicate that El Niño conditions are strengthening and likely to reach a strong or even “super” category toward the end of 2026, with a probability well above 60–90% depending on the metric. Historically, strong El Niño episodes have reduced Malaysian palm oil output by over 10% in the following year. Malaysian meteorological and industry officials stress that the timing and distribution of rainfall between September and November 2026 will be decisive for the eventual impact on 2027 palm yields. They note that the monsoon season starting around December could partly offset dryness, but the lagged yield effect of current conditions will only become clear in 2027 production data. For now, the market is pricing in a risk premium rather than an imminent supply shock, especially as near-term production remains on a seasonal uptrend.

3–6 Month Market Outlook

Over the coming months, palm oil is likely to trade in a relatively firm but range‑bound pattern. MPOC expects CPO prices to hover roughly between MYR 4,400 and 4,650/t in the near term, assuming steady biodiesel demand and no major disruption to production. The current MDEX curve—firm front months and a modest contango into early 2027—aligns with this view of a market that is supported but not tight. Key bullish risks include: (1) confirmation and smooth execution of higher biodiesel blending in Indonesia and Malaysia, (2) a renewed rally in crude oil that further enhances biodiesel economics, and (3) clear evidence of El Niño-driven stress in official production or export data. On the bearish side, faster‑than‑expected rapeseed and canola arrivals into Europe and Asia, together with sustained high palm oil stocks in Malaysia and Indonesia, could trigger profit-taking and widen discounts needed to stimulate incremental demand.

Trading Outlook & Recommendations

• Producers / Sellers: Use the current firm forward curve (above EUR 1,000/t on early‑2027 maturities) to extend hedging coverage on a layered basis, especially for Q1–Q2 2027, while keeping some open exposure to potential El Niño‑related price spikes.
• Importers / Consumers: Maintain at least baseline coverage for Q4 2026–Q1 2027 needs; consider buying on dips toward EUR 900–930/t, where downside is cushioned by biodiesel demand and weather risk premiums.
• Spread / Cross‑commodity traders: Monitor palm oil versus rapeseed oil and soyoil spreads; ample rapeseed and soybean supply suggests opportunities in long palm/short rapeseed or soyoil only on clear signs of tightening palm fundamentals or a renewed energy rally.

3‑Day Directional Outlook (EUR Basis)

• MDEX CPO (nearby, EUR/t): Slightly firmer bias; expected to track crude oil and biodiesel headlines, with a likely range equivalent to EUR 910–950/t.
• European palm oil import values (CIF, EUR/t): Stable to marginally higher as buyers digest palm’s premium over some competing oils but factor in energy-linked support.
• Curve structure: Mild contango is likely to persist, reflecting comfortable near‑term stocks but growing weather‑related uncertainty heading into 2027.