On Wednesday (December 17), the benchmark March palm oil futures contract on the Bursa Malaysia Derivatives Exchange (BMD) traded in a stalemate with limited intraday volatility. At the close, the contract edged up 3 ringgit, or 0.08%, to settle at 3,965 ringgit per tonne. This slight gain failed to fully recover from the previous three trading days' cumulative decline of 1.39%, with prices even touching a six-month low during the session. The market is at a critical juncture, with mixed bullish and bearish factors at play: on the one hand, there is significant support from the crude oil market; on the other hand, the shadow of weak exports and persistently high inventory levels looms large.

Fundamental pressures: The dilemma of weak exports and high inventories

The core contradiction in the current market lies in its own supply and demand. David Ng, a proprietary trader at Kuala Lumpur-based trading firm Iceberg X Sdn Bhd, explicitly stated, "The market remains concerned about weak exports and high domestic inventory levels." This view pinpoints the current market's pain points. Data shows that since the start of the 2025/26 marketing year in July (as of December 14), EU palm oil imports have fallen to 1.35 million tons, a 12% year-on-year decline. As one of the major import destinations, the slowdown in EU demand has exacerbated market concerns about global consumption power. Meanwhile, Malaysian port loading data remains weak, and the market generally expects month-end inventories to remain at a pressure level. Although soybean oil and palm oil futures on the Dalian Commodity Exchange fell by 0.89% and 1% respectively today, and soybean oil prices on the Chicago Board of Trade (CBOT) also declined slightly by 0.17%, putting competitive pressure on palm oil prices, the more critical constraints still stem from within the market itself.

External support: Key variables injected into the crude oil market

However, the market did not collapse further due to fundamental pressures, with strong support from the energy market playing a crucial "bottoming-out" role. International crude oil prices rose by more than 1% today, becoming the most important upward driver for the palm oil market. According to reports from well-known institutions, this volatility stemmed from escalating geopolitical tensions. Stronger crude oil prices directly enhance the economic appeal of palm oil as a biodiesel feedstock, boosting its consumption prospects in the energy sector. Furthermore, the trading currency, the Malaysian ringgit, weakened slightly by 0.07% against the US dollar today, making dollar-denominated palm oil slightly cheaper for overseas buyers, which also provided some marginal benefits.

It is worth noting that the potential impact of biofuel policy is a variable that needs to be continuously monitored in the future. The U.S. Environmental Protection Agency (EPA) is expected to finalize its biofuel blending obligations for 2026 and 2027 in the first quarter of next year. If this delayed policy ultimately sets positive blending targets, it will provide a long-term policy anchor for the demand for vegetable oils, including palm oil, in the energy sector, and is key to influencing future price levels.

Institutional Views and Market Outlook

In summary, the current market is in a typical oscillating pattern with a "ceiling" and a "floor." David Ng's analysis accurately summarizes this tug-of-war: high inventory and weak exports have created a "ceiling" for price increases, while the rebound in crude oil and the related biodiesel concept constitute a solid "floor."

The market's subsequent breakout direction will depend on which of these two forces undergoes a decisive shift first. In the short term, traders will focus closely on Malaysia's high-frequency export data and inventory changes; any unexpected inventory accumulation or export improvement will trigger price volatility. In the medium to long term, in addition to the aforementioned US biofuel policy, the volatility path of the crude oil market and the purchasing pace of major importing countries will become more crucial guides. It should be noted that although long-term growth in biodiesel demand and potential weather-related factors may provide upside potential, the realization of any medium- to long-term bullish logic is likely to be fraught with twists and turns until current inventory pressures are substantially alleviated. The market needs to digest the current pressures before making room for more optimistic expectations in the longer term. Price performance in the next few trading days may provide clearer clues to the short-term outcome of this battle between bulls and bears.