Palm Oil Market Surges: Third Straight Weekly Gain Amid Supply Concerns and Weather Worries

The palm oil market continues its impressive summer rally, posting a third consecutive weekly gain and closing last Friday at its highest level in 14 weeks. Driven by tight supplies and persistent weather concerns in key producing countries, Malaysian palm oil futures (MDEX) soared 3.4% last week. Despite a soft opening for Monday trading, sentiment remains bullish as market players digest stronger technicals, robust export demand, and a backdrop of erratic weather across Southeast Asia.

The recent bullishness comes at a time when broader edible oil markets are experiencing volatility amid geopolitical uncertainties, while palm oil’s discount to soy and sunflower oil bolsters its competitiveness. Yet, production outlooks remain clouded by persistent El Niño conditions, raising fears of yield losses and tightening stocks among leading exporters like Malaysia and Indonesia. On the demand side, rising imports from India and the Middle East offset softer Chinese buying. Meanwhile, speculative positioning has turned more constructive, reflecting improved export data and strong futures turnover. As market participants reassess risks from both the supply and demand side, eyes are on fresh USDA and Malaysian Palm Oil Board (MPOB) reports for confirmation of bullish fundamentals. The following analysis covers the latest prices, market drivers, fundamentals, global production, and a concise trading outlook.

📈 Price Development

Contract Month	Previous Close (MYR/t)	Last Close (MYR/t)	Change (MYR/t)	Change (%)	Market Sentiment
Aug 25	4138	4262	+124	+2.91%	Firm/Bullish
Sep 25	4180	4309	+129	+2.99%	Firm/Bullish
Oct 25	4210	4315	+105	+2.43%	Firm
Nov 25	4217	4305	+88	+2.04%	Firm
Dec 25	4213	4290	+77	+1.79%	Stable

• Weekly gain: +3.4%
• Highest close in 14 weeks
• Turnover remains elevated (Oct 25 contract: 49,708 lots)

🌍 Supply & Demand Drivers

• 📰 Key Drivers:
  • Malaysian and Indonesian palm oil production faces weather-related risks due to the ongoing El Niño effects.
  • Export demand is strong from India and the Middle East; China’s demand remains sluggish but stable.
  • Strong competitiveness versus rival vegetable oils (soybean, sunflower) supports trade flows.
  • Inventory positions are tightening, especially in Malaysia, according to MPOB estimates.
  • High volatility in competing oil markets (soybean oil, rapeseed oil).
• 📑 Recent Reports:
  • MPOB: Malaysian palm oil inventories fell for the second consecutive month in June.
  • USDA: Reductions in production forecasts for Malaysia/Indonesia for the next quarter.
  • Speculative funds are increasing their net long position on MDEX palm oil futures.

📊 Market Fundamentals & Global Stocks

Country	2023/24 Est. Production (mln t)	2023/24 Est. Stocks (mln t)
Indonesia	46.5	3.2
Malaysia	18.4	1.8
India (importer)	—	0.7
China (importer)	—	0.9
EU (importer)	—	0.6

• Production growth is modest; stocks are trending lower in Southeast Asia.
• Imports by India and, Middle East offset subdued Chinese demand.

🌦️ Weather Outlook

• Persistently dry weather in parts of Malaysia and Indonesia threatens yields; forecasts project continued El Niño influence and below-normal precipitation through the end of July.
• Localised heavy rainfall is possible but unlikely to offset moisture deficits in key palm oil-growing regions (Sabah, Sumatra).
• Crop stress is expected, with a negative impact on bunch formation and oil extraction rates if drought persists into August.

📌 Key Market Drivers & Speculative Positioning

• Weekly price momentum remains bullish with firm technical support.
• Speculative funds are building net long positions, reflecting increased confidence in price stability.
• Rising Indian and Middle Eastern demand is supportive.
• Uncertain Chinese import outlook adds risk.
• Weather remains the market’s key wildcard; any worsening of dryness or flood could spark further price rallies.

🕵️ Last Report Comparison

• The previous report highlighted weaker demand from China and sideways price action. The current rally is a marked improvement, with stronger upward momentum and tighter market conditions.
• Weather risk, previously noted, has intensified, raising the potential for sharper price moves.

💡 Trading Outlook

• Maintain a bullish bias while production and inventory risks persist.
• Consider long positions on dips, especially for near-term contracts (Aug–Nov 2025).
• Monitor Indian demand and Chinese import pace closely for any reversal signals.
• Watch El Niño updates and rainfall data in Malaysia and Indonesia for yield impacts.
• Protect profits on rallies; be ready for profit-taking if forecast shifts or macro headwinds emerge.

📆 3-Day Regional Price Forecast (MDEX)

Date	Forecast Close (MYR/t)	Sentiment
Day 1	4,270	Bullish
Day 2	4,290	Bullish-Stable
Day 3	4,280	Stable