Palm oil's three-week winning streak came to an end: How long can the "price discount" brought about by easing geopolitical tensions last?
2026-03-27 18:30:46
On Friday (March 27), palm oil futures on the Malaysian Derivatives Exchange closed slightly higher amid fluctuations. Despite support from a weak ringgit during the day, the market is poised for its first weekly decline in nearly four weeks. The core contradiction this week lies in the combination of uncertainty surrounding the Middle East geopolitical situation and volatility in the oil market, which together suppressed the strong rebound of the previous three weeks.
This week's core market narrative revolved around pricing in geopolitical risks. Paramalingam Supramaniam, a director at Selangor-based brokerage Pelindung Bestari, commented that the market is pricing in the uncertainty surrounding the Middle East conflict and the next move in oil prices. This is a key reason why, despite Friday's intraday rebound, the market failed to reverse its weekly downtrend.
The performance of the crude oil market directly impacts the economic viability of palm oil as a biodiesel feedstock. This week, international oil prices fell sharply, marking the largest weekly decline in six months, as signals of a potential easing of geopolitical tensions emerged. This shift directly weakened palm oil's appeal in the biodiesel sector. Industry monitoring data suggests that if geopolitical conflicts further ease, the weakening of energy prices will be a major obstacle to further increases in palm oil prices. However, David Ng, a trader at Iceberg X in Kuala Lumpur, added a short-term perspective, believing that strong crude oil and soybean oil prices remain positive supporting factors for palm oil against the backdrop of ongoing conflict, with support above 4580 ringgit/ton and resistance at 4700 ringgit/ton.
While external pressures emerged, exchange rate factors provided a short-term buffer for Friday's gains. During the trading session, the ringgit weakened by 0.33% against the US dollar, making palm oil priced in its own currency more cost-effective for overseas buyers, thus attracting some bargain hunters. This pattern of "macroeconomic pressure versus microeconomic support" clearly reflects the current tug-of-war between bulls and bears in the market.
Furthermore, the strong performance of related vegetable oil markets provided a boost to palm oil sentiment. As of Friday's Asian trading session, the most active soybean oil contract on the Dalian Commodity Exchange rose 0.67%, while the palm oil contract rose 1.38%; soybean oil prices on the Chicago Board of Trade also recorded a slight increase. Because palm oil holds a significant share of the global vegetable oil market, its price movements are highly correlated with competing oil products. The rise in the prices of competing oil products provided passive support for palm oil prices, limiting further downside potential.
While short-term market movements are driven by geopolitics, fundamental structural changes are quietly accumulating. According to recent monthly assessments from multiple industry institutions, a key shift in the market in March was the interplay of geopolitical tensions, transportation disruptions, fertilizer inflation, and domestic policy risks in Indonesia. Market analysis specifically emphasizes that if transportation disruptions related to the Strait of Hormuz continue into the next fertilizer procurement window, and Southeast Asian plantations significantly reduce nutrient application, production losses could materialize subsequently, tightening the global palm oil balance beyond current expectations.
Based on this logic, many institutions have adopted a moderately bullish baseline forecast for the second quarter of 2026, accompanied by high volatility. Industry analysts believe that the main risk to prices stems from any escalation of the Middle East conflict, which could trigger an energy crisis and further strain the supply chain. However, the analysis also cautiously points out downside risks, namely a rapid easing of geopolitical tensions, a general weakening of the energy sector, a greater-than-expected decrease in demand from major consuming countries, and a potential global economic slowdown suppressing buying interest in longer-term contracts. This analysis suggests to traders that although there has been a weekly pullback, the underlying medium-term logic supporting prices has not completely reversed, and the market is currently in a window of opportunity where the old logic (expectations of tight supply) and new variables (geopolitical easing and falling oil prices) are at play.
Another noteworthy signal comes from the policy level in Malaysia, a major fertilizer-producing country. The Malaysian government confirmed this week that it is taking measures to ensure fertilizer supply. This comes against the backdrop of the Middle East conflict and related export restrictions, which have driven up raw material costs and created domestic supply shortages. This development confirms market concerns about "fertilizer inflation," indicating that upstream cost pressures have spread from macroeconomic anxieties to the operational level of the real economy. For plantations, rising fertilizer costs directly erode profits; for traders, this foreshadows the potential risk of declining yields in the future, adding new complexity to the pricing of longer-term contracts.
Q: Why did palm oil prices rise on Friday despite the decline in crude oil prices this week?
A: Friday's gains were mainly due to two factors: First, the depreciation of the Malaysian ringgit against the US dollar reduced procurement costs for overseas buyers, creating immediate buying support; second, soybean oil prices in Dalian and Chicago rose in tandem, and as a substitute, the strength of soybean oil had a sentiment-driven effect on palm oil prices.
Q: What exactly does the "geopolitical uncertainty" that the market is currently focusing on refer to?
A: This mainly refers to the conflict situation in the Middle East and its potential impact on the global energy supply chain. The market is concerned that escalating conflict could trigger an energy crisis, push up crude oil prices, and consequently increase palm oil (a feedstock for biodiesel). Conversely, a de-escalation of the situation could lead to lower oil prices, weakening demand for palm oil in the biodiesel sector. This dual uncertainty resulted in significant volatility and a market correction this week.
Q: Why is the "fertilizer inflation" mentioned by the institution important?
A: Fertilizer is a key input in palm oil cultivation. If geopolitical conflicts lead to transportation disruptions and high raw material costs, plantations may reduce fertilizer application. This will directly result in a decrease in fresh fruit bunch yield and oil extraction rate several months later, thus creating a structural tightening on the supply side. This impact will not be immediately apparent, but it could become a core driver pushing up palm oil prices in the future.
Q: How do you view the contradiction between the market's "moderately bullish" expectations for the second quarter and this week's decline?
A: The two statements are not contradictory; they belong to different time-time dimensions. This week's decline was mainly driven by expectations of easing geopolitical tensions and a short-term pullback in oil prices, representing a technical correction after the previous continuous rise and an immediate reaction to macroeconomic news. The "mildly bullish" outlook, however, is based on medium-term fundamental factors such as continued geopolitical risks, supply chain cost transmission, and potential production losses. If the current pullback does not undermine expectations of medium-term supply tightness, it may instead provide new entry opportunities for bulls.
Q: Besides crude oil and geopolitics, what other key factors should we pay attention to in the future?
A: In the short term, attention should be paid to the direction of the ringgit exchange rate fluctuations and the purchasing pace of major importing countries (such as India and China). In the medium term, the core variable is the actual arrival and application of fertilizers in Southeast Asian producing regions (especially Malaysia), which will directly verify whether "fertilizer inflation" will substantially evolve into production losses. In addition, Indonesia's export policy is also an uncertain factor that could be triggered in the market at any time.
Geopolitical tensions and crude oil prices are exerting short-term downward pressure.
This week's core market narrative revolved around pricing in geopolitical risks. Paramalingam Supramaniam, a director at Selangor-based brokerage Pelindung Bestari, commented that the market is pricing in the uncertainty surrounding the Middle East conflict and the next move in oil prices. This is a key reason why, despite Friday's intraday rebound, the market failed to reverse its weekly downtrend.
The performance of the crude oil market directly impacts the economic viability of palm oil as a biodiesel feedstock. This week, international oil prices fell sharply, marking the largest weekly decline in six months, as signals of a potential easing of geopolitical tensions emerged. This shift directly weakened palm oil's appeal in the biodiesel sector. Industry monitoring data suggests that if geopolitical conflicts further ease, the weakening of energy prices will be a major obstacle to further increases in palm oil prices. However, David Ng, a trader at Iceberg X in Kuala Lumpur, added a short-term perspective, believing that strong crude oil and soybean oil prices remain positive supporting factors for palm oil against the backdrop of ongoing conflict, with support above 4580 ringgit/ton and resistance at 4700 ringgit/ton.
Exchange rate factors provided a buffer, leading to a related increase in the vegetable oil market.
While external pressures emerged, exchange rate factors provided a short-term buffer for Friday's gains. During the trading session, the ringgit weakened by 0.33% against the US dollar, making palm oil priced in its own currency more cost-effective for overseas buyers, thus attracting some bargain hunters. This pattern of "macroeconomic pressure versus microeconomic support" clearly reflects the current tug-of-war between bulls and bears in the market.
Furthermore, the strong performance of related vegetable oil markets provided a boost to palm oil sentiment. As of Friday's Asian trading session, the most active soybean oil contract on the Dalian Commodity Exchange rose 0.67%, while the palm oil contract rose 1.38%; soybean oil prices on the Chicago Board of Trade also recorded a slight increase. Because palm oil holds a significant share of the global vegetable oil market, its price movements are highly correlated with competing oil products. The rise in the prices of competing oil products provided passive support for palm oil prices, limiting further downside potential.
Supply-side concerns emerge; Q2 outlook leans towards moderately bullish.
While short-term market movements are driven by geopolitics, fundamental structural changes are quietly accumulating. According to recent monthly assessments from multiple industry institutions, a key shift in the market in March was the interplay of geopolitical tensions, transportation disruptions, fertilizer inflation, and domestic policy risks in Indonesia. Market analysis specifically emphasizes that if transportation disruptions related to the Strait of Hormuz continue into the next fertilizer procurement window, and Southeast Asian plantations significantly reduce nutrient application, production losses could materialize subsequently, tightening the global palm oil balance beyond current expectations.
Based on this logic, many institutions have adopted a moderately bullish baseline forecast for the second quarter of 2026, accompanied by high volatility. Industry analysts believe that the main risk to prices stems from any escalation of the Middle East conflict, which could trigger an energy crisis and further strain the supply chain. However, the analysis also cautiously points out downside risks, namely a rapid easing of geopolitical tensions, a general weakening of the energy sector, a greater-than-expected decrease in demand from major consuming countries, and a potential global economic slowdown suppressing buying interest in longer-term contracts. This analysis suggests to traders that although there has been a weekly pullback, the underlying medium-term logic supporting prices has not completely reversed, and the market is currently in a window of opportunity where the old logic (expectations of tight supply) and new variables (geopolitical easing and falling oil prices) are at play.
Malaysia's policy response highlights supply chain cost pressures
Another noteworthy signal comes from the policy level in Malaysia, a major fertilizer-producing country. The Malaysian government confirmed this week that it is taking measures to ensure fertilizer supply. This comes against the backdrop of the Middle East conflict and related export restrictions, which have driven up raw material costs and created domestic supply shortages. This development confirms market concerns about "fertilizer inflation," indicating that upstream cost pressures have spread from macroeconomic anxieties to the operational level of the real economy. For plantations, rising fertilizer costs directly erode profits; for traders, this foreshadows the potential risk of declining yields in the future, adding new complexity to the pricing of longer-term contracts.
Frequently Asked Questions
Q: Why did palm oil prices rise on Friday despite the decline in crude oil prices this week?
A: Friday's gains were mainly due to two factors: First, the depreciation of the Malaysian ringgit against the US dollar reduced procurement costs for overseas buyers, creating immediate buying support; second, soybean oil prices in Dalian and Chicago rose in tandem, and as a substitute, the strength of soybean oil had a sentiment-driven effect on palm oil prices.
Q: What exactly does the "geopolitical uncertainty" that the market is currently focusing on refer to?
A: This mainly refers to the conflict situation in the Middle East and its potential impact on the global energy supply chain. The market is concerned that escalating conflict could trigger an energy crisis, push up crude oil prices, and consequently increase palm oil (a feedstock for biodiesel). Conversely, a de-escalation of the situation could lead to lower oil prices, weakening demand for palm oil in the biodiesel sector. This dual uncertainty resulted in significant volatility and a market correction this week.
Q: Why is the "fertilizer inflation" mentioned by the institution important?
A: Fertilizer is a key input in palm oil cultivation. If geopolitical conflicts lead to transportation disruptions and high raw material costs, plantations may reduce fertilizer application. This will directly result in a decrease in fresh fruit bunch yield and oil extraction rate several months later, thus creating a structural tightening on the supply side. This impact will not be immediately apparent, but it could become a core driver pushing up palm oil prices in the future.
Q: How do you view the contradiction between the market's "moderately bullish" expectations for the second quarter and this week's decline?
A: The two statements are not contradictory; they belong to different time-time dimensions. This week's decline was mainly driven by expectations of easing geopolitical tensions and a short-term pullback in oil prices, representing a technical correction after the previous continuous rise and an immediate reaction to macroeconomic news. The "mildly bullish" outlook, however, is based on medium-term fundamental factors such as continued geopolitical risks, supply chain cost transmission, and potential production losses. If the current pullback does not undermine expectations of medium-term supply tightness, it may instead provide new entry opportunities for bulls.
Q: Besides crude oil and geopolitics, what other key factors should we pay attention to in the future?
A: In the short term, attention should be paid to the direction of the ringgit exchange rate fluctuations and the purchasing pace of major importing countries (such as India and China). In the medium term, the core variable is the actual arrival and application of fertilizers in Southeast Asian producing regions (especially Malaysia), which will directly verify whether "fertilizer inflation" will substantially evolve into production losses. In addition, Indonesia's export policy is also an uncertain factor that could be triggered in the market at any time.
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