On Friday (November 7), the most active palm oil contract on the Malaysian Derivatives Exchange closed at 4,110 ringgit per tonne, down 0.94% on the day and 2.31% on the week, marking its fourth consecutive week of decline. The market is currently shrouded in the dual shadows of rising inventories and weak crude oil prices, leading to cautious investor sentiment.

Fundamentals: Inventory pressure rises to a two-year high

Malaysian palm oil stocks are projected to rise to 2.44 million tons in October, the highest level since October 2023, representing a 3.5% increase month-on-month. If this figure is confirmed in the Malaysian Palm Oil Board (MPOB) report on November 10th, it will confirm the escalating supply pressure. Meanwhile, production climbed to a seven-year high, while export demand failed to keep pace, leading to a further loosening of the supply-demand structure. Furthermore, the weakening of crude oil prices for the second consecutive week has diminished the economic viability of palm oil as a biodiesel feedstock, exacerbating the bearish sentiment in the market.

Institutional View: Finding Support Amidst Divergence

Renowned analyst Sandeep Singh noted, "Palm oil is currently facing triple pressures from rising inventories, weak crude oil prices, and declining biodiesel viability." However, he also emphasized that current prices are lower than soybean oil, and there is key technical support around 4080 ringgit, which may attract bargain hunters. This view suggests that while the market is under pressure in the short term, the downside potential may be limited.

Related Markets: Marginal Improvement in the External Environment

Despite weak fundamentals for palm oil, subtle changes have emerged in the external market. On November 7th, soybean oil futures contracts on the Chicago Board of Trade rebounded slightly by 0.55%, while the most active soybean oil contract on the Dalian Commodity Exchange (DCE) also rose slightly by 0.29%, while palm oil futures contracts on the DCE remained unchanged throughout the day. The stabilization of related edible oils may provide indirect support for palm oil. If the price spread between soybean oil and palm oil continues to widen, some demand may shift to palm oil, which offers a greater price advantage.

Future Focus: Data Validation and Policy Trends

The market's next move will depend on the final data from the MPOB monthly report. If inventory increases exceed expectations, prices may test the 4080 ringgit technical support level; improved export data could trigger short covering. Furthermore, changes in Indonesia's production policies and biodiesel blending plans need close monitoring. Despite a long-term bearish supply-demand balance, weather uncertainties and labor issues in Southeast Asian production regions could still be potential bullish factors in the fourth quarter.

Weak reality and strong game theory coexist

The current palm oil market is caught in a tug-of-war between the reality of "high inventory and weak demand" and "low prices attracting buyers." While the short-term trend is bearish, prices are gradually approaching a key support level, and investors should be wary of the risk of a technical rebound. Before the crude oil market stabilizes, palm oil is unlikely to escape its weak and volatile pattern. It is recommended to pay close attention to market structure changes and capital flows after the release of MPOB data.