Palm Oil Retreats as Crude and Soy Complex Weigh – Weather Premium on Hold

Palm oil futures have broken their recent winning streak, with benchmark contracts on both the Malaysian and Malaysian-Dalian exchanges sliding around 1.5–2% amid weaker crude oil and softer rival vegetable oils. Export demand shows only a cautious early-June recovery, while speculative funds are aggressively cutting long exposure across the oilseed complex, amplifying the downside move.

Prices are retreating from recent highs but remain within the upper part of the medium-term range, supported by lingering El Niño risks and biodiesel demand. For now, macro pressure from falling crude, improving oilseed weather and heavy fund liquidation dominates. Short-term, the market is vulnerable to further technical correction, yet any sharper dip could quickly revive physical buying from price-sensitive destinations in Asia and the Middle East.

Prices & Spreads

On June 12, 2026, palm oil futures on the Malaysian derivatives exchange posted broad losses after several weeks of gains. The most actively traded August contract fell by about 1.6% to roughly RM 4,475–4,479 per tonne, the lowest close in more than two weeks and ending a three-week rally.

On the Dalian-linked MDEX curve, front-month June 2026 settled at MYR 4,387/t, down 1.69% on the day, with declines of 1.7–2.1% observed out to February 2027 as the whole curve shifted lower. Later-dated contracts from mid‑2027 onward show thinner liquidity but also registered smaller percentage losses around 1.3%, indicating a mild flattening of the curve rather than outright contango.

FX assumption: 1 EUR ≈ 5.07 MYR for indicative conversion only.

Supply, Demand & Macro Drivers

Vegetable oil markets are currently driven more by macro and cross‑commodity flows than by palm-specific fundamentals. Crude oil prices have come under strong pressure after a ceasefire framework in the Middle East raised expectations of fully restored shipping through the Strait of Hormuz, easing earlier supply fears and dragging down the entire energy complex. This has reduced support for energy-linked biofuel feedstocks such as palm oil.

At the same time, soybeans and soy oil have weakened on improved crop weather in the U.S. Midwest and Europe, boosting yield prospects and weighing on competing oils. Good rainfall since early May has improved European oilseed outlooks, while warm, moist conditions in the Midwest support robust soybean development. This combination undercuts the weather-risk premium in vegoils, pressuring both rapeseed and palm despite lingering concerns about future El Niño effects on Southeast Asian production.

On the demand side, Malaysian export data for early June point to only a cautious recovery in shipments, with export surveyors reporting modest month-on-month growth of around 3.5–5% during the first third of the month. Market commentary characterises this as a fragile rebound, and traders remain unconvinced that exports can sustain higher levels without deeper price discounts.

Fundamentals & Positioning

Recent palm oil weakness is tightly linked to broader oilseed complex positioning. In the week to June 9, managed money in U.S. soybeans registered the largest single-week long liquidation since 2006, with commodity funds cutting 65,294 contracts and reducing net longs to around 90,756 contracts. A similar pattern in soymeal saw net longs slashed by over 74,000 contracts. This rapid de‑risking has spilled over to palm oil through spread trades and cross‑commodity arbitrage, accelerating the pullback.

USDA export data indicate current-season U.S. soybean export sales at 40.15 million tonnes, around 97.7% of the recently lowered official forecast, but still lagging the typical seasonal pace. New-crop sales, at roughly 1.0 million tonnes, are running about 8% behind last year. These relatively soft demand signals help cap soy complex rallies, in turn removing an important source of support for palm oil prices, especially when biodiesel-related demand in Malaysia and Indonesia is not yet strong enough to absorb additional supply.

Weather & Regional Outlook

Weather remains a two-sided driver. In key North and South American oilseed regions, current conditions are largely benign, with good soil moisture and favourable temperatures supporting strong soybean and rapeseed growth. This reduces immediate threats of a supply shortfall and limits risk premia in global vegoils.

For Southeast Asia, traders stay alert to potential El Niño impacts on rainfall and palm yields later in the year, but the latest market action suggests that, for now, production is performing better than feared. Recent commentary notes a “sudden surge in production” that has disrupted earlier bullish expectations and contributed to the current correction. Any sustained emergence of drier conditions in coming months could quickly re‑ignite a weather premium, but this is not yet visible in current pricing.

Trading Outlook

• Producers / Crushers: Use current price weakness to extend hedging on Q3–Q4 2026 output, especially if local margins remain positive. The forward curve still offers historically attractive levels in EUR terms; layering in sales on rallies back toward the recent resistance band around MYR 4,580–4,730 (≈ EUR 900–930) for August could be prudent.
• Importers / End-users: Consider scaling in coverage for late‑summer and early‑autumn needs on dips toward the lower end of the projected RM 4,200–4,550/t range highlighted by regional analysts, equivalent to roughly EUR 830–900/t. Maintain some flexibility in case further crude-driven downside emerges.
• Speculative traders: Momentum currently favours the downside following record fund long liquidation in oilseeds. Short-term traders may look to sell rallies into resistance, while closely monitoring crude oil, soy oil and export survey data for signs of a reversal. Tight stops are advisable given the potential for a rapid weather- or macro-driven rebound.

3-Day Price Indication (Directional)

• Bursa Malaysia (CPO Aug 2026): Slightly bearish bias; trade expected broadly within RM 4,300–4,550/t (≈ EUR 850–900/t) as the market digests weaker crude and soy oil prices.
• European CIF Rotterdam (refined palm products): Mildly softer tone in EUR terms, with some support from currency moves; discounts versus soy oil likely to widen slightly to stimulate demand.
• Indonesia domestic CPO: Relatively steadier than futures after a modest uptick in local benchmark prices, but still exposed to any further global futures downside in the near term.