Palm Oil Under Pressure as Weak Rival Oils and Crude Weigh on Futures

Palm oil futures remain under pressure as weakness in rival vegetable oils, lower crude prices and expectations of rising Malaysian output outweigh a recent pickup in exports. Prices are consolidating below recent highs, leaving the market vulnerable to further downside unless demand strengthens or energy markets recover. After several weeks of gains, Malaysian palm oil futures have turned softer, with the benchmark August contract recently closing lower as selling in soybean oil and crude oil spilled over into the vegetable oil complex. Despite a notable recovery in exports in early June, strong domestic production and expectations of higher output in June are capping rallies and keeping sentiment cautious.

Prices & Spreads

The benchmark August palm oil contract on Bursa Malaysia recently fell about 0.6% to roughly USD 1,099 per tonne, equivalent to around EUR 1,020–1,040 per tonne at current exchange rates. This places futures slightly below the three-week high seen earlier in June and in the lower half of the recent trading range. Weakness in rival vegetable oils has been a key driver: the most-active Dalian soybean oil contract slipped around 0.3%, the Dalian palm oil contract dropped more than 1%, and Chicago soybean oil futures fell nearly 1.8%. These moves have narrowed palm oil’s traditional discount to other oils, eroding its pricing advantage in key import markets. Crude oil prices have also softened, with Brent retreating toward the low‑80s USD per barrel in mid‑June after a preliminary US–Iran agreement to end hostilities and restore flows through the Strait of Hormuz. This has undermined palm oil’s support from the biodiesel complex and reinforced the recent downward correction in futures.

Supply & Demand Drivers

On the supply side, Malaysian domestic production is showing strong growth, with market participants anticipating a further increase in June as estates move deeper into the seasonal uptrend. This expectation of higher output is weighing on sentiment and limiting the impact of supportive factors such as weather risks and firmer demand later in the year. Despite the production overhang, export performance has improved. Cargo surveyors reported that Malaysian palm oil exports for June 1–15 rose sharply, with one inspector estimating growth of nearly 24% month-on-month and another around 10%. These stronger shipments suggest restocking interest from key buyers, but the improvement has so far been insufficient to offset concerns over swelling domestic availability. India, a major consumer, offers a mixed picture. Imports of palm oil in May edged up from a four-month low but remain below typical levels, as refiners have increasingly switched to cheaper soybean oil after palm oil lost part of its price advantage. This substitution effect is restraining demand growth for palm oil even as export data show a modest recovery.

Fundamentals & Policy

Fundamentals currently tilt bearish in the near term: rising Malaysian output, softer crude oil prices and weakness in rival oils are the dominant drivers. Palm oil tends to track movements in other edible oils, and the recent selloff in soybean oil and other vegetable oils during Asian trading hours triggered a gap-down opening in palm futures, followed by largely sideways trade. On the policy front, Malaysia has lowered its July reference price for crude palm oil while maintaining the export duty at 10%. This adjustment reflects the recent cooling in international prices but does not materially change the duty burden for exporters, limiting the immediate stimulus to shipments. In the medium term, weather remains an important swing factor. Recent analysis from research houses highlights rising El Niño risks, with forecasts pointing to a higher probability of a strong event that could trim palm oil yields later this year and in 2027. For now, however, these risks are more supportive to forward price expectations than to prompt-month contracts, which remain dominated by current supply and macro conditions.

Weather Outlook

Weather in key producing regions is entering a more volatile phase. In Indonesia, meteorological data show that roughly one-third of monitored zones are now in the dry season, consistent with an emerging El Niño pattern. While near-term field conditions remain generally adequate, the risk is that a pronounced and persistent El Niño later in 2026 could lower fresh fruit bunch yields by mid‑2027. In Malaysia, official statements and recent market commentary warn that a strong El Niño could cut national yields by around 8–10% this year compared with baseline projections, although the impact is likely to be back‑loaded. For now, production is still rising seasonally, so weather risk acts mainly as a floor to longer‑dated prices rather than as a driver of the front-month contract.

Short-Term Market Outlook

In the coming days, palm oil futures are likely to remain range‑bound to slightly softer, as the market digests strong domestic output, lower crude prices and the latest export figures. Any further weakness in Chicago or Dalian vegetable oil markets would reinforce downside pressure, especially if the ringgit stays firm against the US dollar. However, downside may be limited by improving export demand and by the market’s awareness of mounting weather risks later in the year. If crude oil stabilizes or recovers from recent lows and soybean oil finds a floor, palm oil could see a modest technical rebound from current levels, though sustained rallies will likely require clearer evidence of tightening inventories.

Trading Outlook

• Short-term bias: Mildly bearish to neutral. Consider selling rallies toward the upper end of the recent range, with tight risk management given weather‑related upside risks.
• Hedging strategy for producers: Maintain or modestly increase hedge coverage for Q3 shipments while prices remain above production costs, but retain some open exposure to benefit from potential El Niño‑driven strength in late 2026.
• End‑users and refiners: Use current price softness to lock in a portion of Q3–Q4 requirements, while staggering purchases to take advantage of any further dips triggered by crude oil or macro risk‑off moves.
• Spread and inter‑commodity plays: Monitor palm–soybean oil spreads; if palm’s discount widens again, a re‑balancing of demand from soyoil back to palm could emerge, offering opportunities in inter‑oil arbitrage.

3‑Day Directional View (EUR Terms)

• Bursa Malaysia FCPO (Aug contract): Slight downside to sideways; expected to fluctuate roughly within a −1% to +1% band in EUR terms, with risk skewed lower if crude and soybean oil extend losses.
• Physical CPO FOB Malaysia: Stable to slightly weaker, with buyers cautious and freight and currency moves the main sources of short‑term volatility.
• India landed CPO (CIF, converted to EUR): Mostly steady, as refiners balance cheaper soyoil alternatives against the need to rebuild palm inventories ahead of festival demand later in the year.