Palm Oil Holds Above MYR 4,500 as El Niño Risk Offsets Softer Curve

Prices remain firm on the Malaysian derivatives exchange, with the palm oil forward curve clustered around MYR 4,500/t despite small daily losses in key contracts. Weather-driven supply risks linked to a developing El Niño and policy-led demand in Southeast Asia are preventing any deeper correction. Tight edible oil balances and strong energy markets are adding a floor under prices. The market is currently trading a slightly downward-sloping forward curve from nearby July 2026 into mid-2027, then stabilising further out. Modest intraday ranges and light volume in the front month suggest consolidation rather than trend reversal. At the same time, analysts now expect El Niño to keep crude palm oil (CPO) prices elevated well into 2027, with a tightening exportable surplus in Malaysia and Indonesia. Against this backdrop, trade flows into India and other key importers face rising policy and price risk.

Prices

MDEX palm oil futures on 8 July 2026 show a tight range around MYR 4,500/t. The active Aug 26 and Sep 26 contracts settled at MYR 4,512 and 4,543 respectively, each slipping by just MYR 4 on the day, while Jul 26 edged up MYR 7 to MYR 4,490. Further along the curve, contracts out to mid-2027 trade only about MYR 100–170/t above nearby levels, indicating limited carry and a relatively flat structure.

Converting roughly to EUR at an indicative rate of 1 EUR ≈ 5 MYR, the key contracts are trading near EUR 900/t. This keeps CPO at a premium to historical averages but broadly aligned with recent industry projections that anticipated July 2026 prices around MYR 4,400–4,650/t amid tightening supply. Recent research suggests average CPO values for 2026–27 could remain close to or slightly above current levels, with potential peaks in early 2027 if weather stress materialises.

Supply & Demand

Fundamentally, the palm oil balance is tightening. Malaysian output, after a solid 2025/26 season, is expected to moderate in 2026/27 as El Niño-linked dryness weighs on fresh fruit bunch yields. At the same time, Malaysia’s higher biodiesel blending mandate (B15) is set to absorb a larger share of domestic production, slowing stock accumulation and trimming export availability.

On the demand side, India remains a central driver, taking roughly one-third of Indonesia’s palm oil exports in recent trade, while global import demand benefits from palm oil’s pricing advantage versus alternative vegetable oils. Growing regulatory control over exports in Indonesia is adding uncertainty and occasional timing risk for key buyers, notably in India, and reinforces the market’s sensitivity to any production surprises over the coming quarters.

Fundamentals & Weather

The current price plateau reflects a balance between near-term supply still flowing and forward-looking weather risk. Global climate agencies now see a high probability that El Niño conditions will dominate from mid-2026 into 2027, typically associated with drier weather across much of Indonesia and parts of Malaysia. Historically, strong El Niño events have cut global palm oil production by 2–5% year-on-year, a scale that can significantly tighten the edible oil complex.

Analyst revisions over the past days highlight this shift: expectations that CPO prices would ease in the second half of 2026 have been replaced by projections of sustained firmness, with some houses now forecasting average prices around MYR 4,400/t in 2026 and MYR 4,450/t in 2027. With Malaysian exports for 2025/26 already revised higher and domestic biodiesel use rising, there is less buffer in stocks if weather turns sharply drier later this year.

Weather outlook for key regions

• Climate models indicate El Niño probabilities near or above 80–90% for July–September 2026, with a meaningful risk of a strong episode extending into 2027.
• Such a pattern typically implies below-average rainfall over major palm oil regions in Indonesia and parts of Malaysia, increasing the likelihood of yield stress from late 2026 onward.
• For now, field conditions are still generally adequate, but market participants are increasingly pricing in the potential for production downgrades if dryness persists for several months.

Trading Outlook

The MDEX curve around MYR 4,500/t, with only modest contango out to mid-2027, suggests the market is already embedding a weather risk premium but not yet a severe supply shock. Short-term price action is characterised by tight daily ranges and only small net moves, pointing to consolidation after the recent rally.

• Producers / crushers: Consider layering in incremental hedges on 2026/27 production above EUR 900/t equivalent, while keeping some upside open in case of stronger-than-expected El Niño impact.
• Importers / refiners: Use current consolidation to extend coverage modestly into early 2027, focusing on dips towards EUR 870–890/t if they occur, but avoid over-hedging ahead of clearer production signals.
• Speculative participants: The risk-reward favours buying moderate dips rather than chasing breakouts; upside spikes are likely on any confirmed yield downgrades or further export policy tightening in Indonesia.

3‑day Price Indication (directional)

• MDEX front months (Jul–Sep 26): Sideways to slightly firm in EUR terms, with MYR-denominated prices expected to oscillate around current levels as traders monitor weather updates.
• Deferred 2027 contracts: Stable to mildly supported, reflecting embedded El Niño risk and limited incentive for significant contango expansion in the near term.
• Local EUR-based physical markets: Largely steady, with modest upside risk if MYR strengthens or if further bullish weather headlines emerge.