On Tuesday (April 7), data from the Bursa Malaysia Derivatives Exchange showed that the most active palm oil futures contract (June delivery) fell for the second consecutive trading day. Although it recovered some losses during the session, it ultimately closed down 45 ringgit, or 0.94%, at 4,766 ringgit per tonne. Market sentiment was constrained by the weakness in crude oil prices, while upcoming inventory data provided potential bottom support for the market.

Crude oil price fluctuations dominate short-term trading sentiment.

The core trading logic of the current palm oil market remains closely tied to the external energy market. Paramalingam Supramaniam, director of Selangor-based brokerage Pelindung Bestari, pointed out that the market continues to be driven by the directional guidance of crude oil prices, compounded by uncertainties arising from the Middle East geopolitical situation. As of 18:10 Beijing time, the Brent crude benchmark contract fell 0.75% to $111.93 per barrel.

Weakening crude oil prices have directly reduced the economic viability of palm oil as a biodiesel feedstock. When crude oil prices decline, the attractiveness of biodiesel blending decreases, thereby suppressing industrial demand expectations for palm oil. This is the core reason why the current market, despite being supported by positive supply-side factors, has failed to rebound effectively. Professional traders need to understand that the market's current focus is temporarily shifting from the supply-side narrative to short-term pressures from energy substitution demand.

Inventory levels expected to fall to July lows provide resilience

Despite downward pressure from crude oil prices, the fundamentals for palm oil are not pessimistic. A survey by a well-known institution indicates that Malaysian palm oil inventories in March may record their largest monthly decline in three years, falling to their lowest level since July last year. This assessment is based on the fact that strong export growth in March outpaced the moderate recovery in production during the same period.

Analyst Supramaniam emphasized that if exports can maintain the strong momentum of March and current inventory levels remain stable, the palm oil market is expected to show resilience. This view does not contradict the current slight decline in prices—short-term sentiment is dragged down by crude oil, but the medium-term fundamental structure is improving.

The Malaysian Palm Oil Board (MPOB) will release its official supply and demand report on April 10. The discrepancy between the actual and expected inventory data will be a key indicator of the next direction of palm oil prices.

The market trends of related vegetable oils are diverging.

Looking at competing edible oils, the market is showing a divergent pattern. The Dalian Commodity Exchange's soybean oil futures contract rose 0.85%, while the Dalian Commodity Exchange's palm oil contract fell 0.36%. Chicago Board of Trade soybean oil prices rose slightly by 0.11%. This divergence indicates that the fundamentals of different vegetable oil markets differ, with palm oil currently being more influenced by the interplay between export schedules from producing regions and crude oil sentiment.

The ringgit weakened by 0.07% against the US dollar on the day, making the price of palm oil denominated in ringgit slightly lower for buyers holding foreign currency. This is a potential marginal benefit to exports, but it failed to offset the negative sentiment of declining crude oil prices in the short term.

Summary from a professional perspective

The palm oil market is currently in a tug-of-war between bulls and bears: short-term traders are focused on demand concerns stemming from weak crude oil prices, while medium-term traders are awaiting confirmation of the extent of inventory declines in the MPOB report on April 10th. In the coming trading days, the performance of Brent crude oil around the $110 mark, and the pace of stockpiling by major purchasing countries ahead of the MPOB report, will be key variables determining whether palm oil futures can stabilize above 4700 ringgit.

Question 1: Why does a drop in crude oil prices lead to a weakening of palm oil futures?
Answer: Falling crude oil prices reduce the economic viability of biodiesel blending. Palm oil is one of the main raw materials for biodiesel. When crude oil prices are low, the attractiveness of using palm oil to produce biodiesel decreases, thereby suppressing industrial demand expectations and putting pressure on palm oil futures prices.

Question 2: What are the expected palm oil inventory levels in Malaysia for March?
Answer: According to a survey by a well-known institution, Malaysian palm oil stocks are expected to see their largest monthly decline in three years in March, falling to their lowest level since July last year. The main reason is strong export growth, which outpaced the moderate recovery in production.

Question 3: When is the MPOB report released? Why is it important?
Answer: The Malaysian Palm Oil Board (MPOB) will release its official supply and demand report on April 10. This report will publish actual production, export, and inventory data for March. The market will compare these figures with expected values to determine the strength of the fundamentals, which is a key indicator of the direction of palm oil prices.

Question 4: What impact do fluctuations in the Malaysian Ringgit exchange rate have on palm oil prices?
Answer: Palm oil is priced and traded in ringgit. When the ringgit depreciates, overseas buyers holding foreign currencies such as US dollars need less foreign currency to purchase the same amount of palm oil, which is equivalent to a lower price. Theoretically, this benefits export demand and supports the price.

Question 5: What is the main contradiction in the current palm oil market?
Answer: The current core contradiction is the interplay between "short-term demand suppression due to weak crude oil prices" and "medium-term supply support from low inventory levels." Short-term traders are focused on the direction of crude oil prices, while medium-term traders are waiting for the MPOB report to confirm the extent of the inventory decline. This has resulted in a volatile market with support at lower levels.