Malaysian crude palm oil futures rallied above RM4,750 per tonne on Wednesday, reaching a four-month high, as firmer crude oil prices and gains in rival vegetable oils lifted the market. The benchmark contract climbed despite earlier pressure from rising production and inventories, with the catalyst shifting to energy and competing oilseed markets.
Supply Context Remains
The rally comes after a period of consolidation near $1,104/MT (RM 4,519), where the market had digested a mixed supply-demand picture. Malaysia's July MPOB data showed CPO production at 1,792,979 tonnes, up 9.4% month-on-month, while closing stocks rose 7.2% to 1,429,316 tonnes—a five-month high. Exports jumped 14.5% to 1,392,178 tonnes, but imports plunged 51.9% to 49,566 tonnes. The FFB reference price edged up 1.2% to RM 49.50.
These supply-side factors had previously pressured prices, but the market has now turned bullish on external cues. The global benchmark hovered near $1,101/MT, while Indonesia's reference price stood at about $1,030/MT. Brent crude held firm near $87 a barrel, down 1.3% on the day but still supportive of biodiesel blend economics.
Crude Oil and Rival Oils Drive Gains
Stronger crude oil prices have improved the economics of palm oil-based biodiesel, underpinning demand. At the same time, gains in rival vegetable oils—soyoil and sunflower oil—have made palm oil relatively more attractive. Reports from China indicate palm oil prices rising amidst volatility, while Dalian and Chicago oils have shown strength in recent sessions.
Traders note that the rally above RM4,750 marks a breakout from the recent rangebound trading, with bullish momentum building. The move aligns with a four-month high, reflecting renewed confidence in the demand outlook.
El Niño and Weather Risks Persist
El Niño conditions (ONI +1.4) continue to raise concerns about future yields, with dry weather reported in key regions such as Kalimantan. This risk premium remains an underlying support, even as seasonal production peaks. The market is also watching Black Sea oilseed supplies, which have been cheap, but disruptions could shift demand toward palm oil.
Outlook
Our model outlook sees CPO facing mixed forces: near-term supply pressures from peak production and ample stocks, countered by a wide BOPO spread, El Niño anticipation, and firm crude oil. The recent rally suggests upside momentum, but volatility remains low. The expected path over the next seven sessions is a slight drift lower before stabilization, with uncertainty hinging on export pace and crude oil movements.
Key factors to watch include Malaysian export data for early August, China's vegetable oil demand, weather updates from producing regions, and any shifts in biodiesel policy. India's import pace and Black Sea supply dynamics will also be critical in shaping the balance.