Palm oil market analysis: A confluence of bullish factors drives Malaysian palm oil futures higher for two consecutive days.
2026-05-28 21:15:14
On Friday (May 28), Malaysian palm oil futures rose for the second consecutive trading day. The benchmark contract—the August crude palm oil futures contract on the BMD exchange—rose 39 ringgit, or 0.87%, to close at 4,535 ringgit per tonne. The palm oil market continued its previous recovery, driven by a strong rebound in crude oil prices and overall strength in the competitive vegetable oil market.
The core driver of this round of price increases stems from the resonance effect of external markets. Crude oil futures surged by over 2% that day, directly triggered by the Iranian Islamic Revolutionary Guard Corps' announcement of a strike on a US airbase in response to the previous US military operation in Bandar Abbas. The sudden escalation of geopolitical tensions pushed energy prices up rapidly. For palm oil, stronger crude oil prices further highlight its economic advantages as a feedstock for biodiesel, reinforcing the substitution logic on the demand side.
Meanwhile, the global vegetable oil sector saw widespread gains. The Dalian Commodity Exchange's most active soybean oil contract rose 1.07%, while palm oil contracts climbed 0.96%; Chicago Board of Trade soybean oil futures also recorded a 0.54% increase. Analysts from well-known institutions pointed out that Malaysian palm oil futures maintained a high degree of correlation with energy prices, Chinese vegetable oil futures, and CBOT soybean oil, indicating an overall bullish market sentiment.
In addition, the Malaysian ringgit weakened by 0.38% against the US dollar on the same day, making palm oil priced in ringgit cheaper for buyers holding foreign currency, providing additional support for prices from an exchange rate perspective.
It's worth noting that market participants' focus is gradually shifting from the demand side to the supply side. Analysts from well-known institutions have stated that discussions about a "super El Niño" phenomenon continue to circulate within trading circles, leading to increased caution among traders. Historically, El Niño weather patterns typically result in abnormally low rainfall in Southeast Asian producing regions, creating a lagged effect on palm oil yields—an impact that usually manifests gradually over 6 to 12 months after the event. The current market repricing of this risk is becoming one of the medium- to long-term drivers supporting palm oil prices.
This indicates that the market's trading focus is shifting from the short-term narrative of weak export demand to a forward-looking approach to potential supply-side contraction in the second half of 2026 and even early 2027.
From the demand side, actual data shows that imports in the EU are still slowing down. Data from the European Commission shows that as of May 24, cumulative soybean imports in the EU for the 2025/26 marketing year (starting from July 2025) reached 11.95 million tons, a year-on-year decrease of 8%; palm oil imports during the same period were 2.55 million tons, a year-on-year decrease of 4%. This data reflects the continued policy pressure on palm oil-based fuels in the European market under the Renewable Energy Directive (RED), indicating a relatively clear ceiling on medium- to long-term demand.
Meanwhile, another major variable on the supply side comes from Indonesia. The Indonesian Finance Minister confirmed that prominent local palm oil companies Wilmar International and Mustim Mas Group are under investigation for allegedly exporting palm oil with "understated invoices." If such compliance investigations expand or lead to fines or even export quota restrictions for exporters, it could affect the pace of Indonesian palm oil export supply in the short term, thereby disrupting regional prices.
In summary, the palm oil market is currently experiencing a confluence of bullish factors – strengthening geopolitical risks in crude oil, rising prices across competing edible oils, favorable exchange rate conditions, and escalating El Niño expectations are all supporting prices. In the coming week, traders should closely monitor the following aspects: first, the impact of developments in the Middle East on crude oil prices; second, the latest El Niño intensity forecasts from weather models in major producing regions; and third, monthly changes in Malaysian palm oil export data, which will be a key indicator of whether this upward trend can be sustained.
Q: Why does the rise in crude oil prices drive up palm oil prices?
A: Palm oil is one of the main raw materials for biodiesel production. When crude oil prices rise, the economics of biodiesel improves compared to conventional diesel, leading to increased market demand for palm oil as a fuel feedstock, which in turn drives up its price.
Q: How does El Niño affect palm oil production?
A: El Niño typically leads to reduced rainfall and increased temperatures in Southeast Asia, negatively impacting the growth and fruit ripening of oil palm trees. This effect is delayed, generally manifesting as a decrease in yield within 6 to 12 months after the El Niño event.
Q: What does Indonesia's investigation into "under-invoicing" by palm oil companies mean?
A: Underreporting invoices refers to the act of exporters declaring a price lower than the actual transaction price when making customs declarations, which is suspected of tax evasion. If the investigation confirms the violation, the company may face fines or export quota restrictions, which will affect the export supply of Indonesian palm oil and thus impact international market prices.
Q: What are the reasons for the decline in EU palm oil imports?
A: In recent years, the EU has been continuously upgrading its Renewable Energy Directive (RED), imposing stricter restrictions on palm oil-based fuels, classifying them as feedstocks with high indirect land-use change risks. These policy restrictions are the main reason for the continued decline in EU palm oil imports.
Q: What impact does the devaluation of the ringgit have on palm oil prices?
A: Palm oil is priced and traded in the Malaysian Ringgit. When the Ringgit depreciates, the same price of palm oil becomes less expensive for buyers using other currencies such as the US dollar, thus stimulating the purchasing intentions of international buyers and supporting Malaysian palm oil futures prices.
Energy and competing product markets work together to drive up prices.
The core driver of this round of price increases stems from the resonance effect of external markets. Crude oil futures surged by over 2% that day, directly triggered by the Iranian Islamic Revolutionary Guard Corps' announcement of a strike on a US airbase in response to the previous US military operation in Bandar Abbas. The sudden escalation of geopolitical tensions pushed energy prices up rapidly. For palm oil, stronger crude oil prices further highlight its economic advantages as a feedstock for biodiesel, reinforcing the substitution logic on the demand side.
Meanwhile, the global vegetable oil sector saw widespread gains. The Dalian Commodity Exchange's most active soybean oil contract rose 1.07%, while palm oil contracts climbed 0.96%; Chicago Board of Trade soybean oil futures also recorded a 0.54% increase. Analysts from well-known institutions pointed out that Malaysian palm oil futures maintained a high degree of correlation with energy prices, Chinese vegetable oil futures, and CBOT soybean oil, indicating an overall bullish market sentiment.
In addition, the Malaysian ringgit weakened by 0.38% against the US dollar on the same day, making palm oil priced in ringgit cheaper for buyers holding foreign currency, providing additional support for prices from an exchange rate perspective.
El Niño's shadow reappears, and supply-side concerns emerge.
It's worth noting that market participants' focus is gradually shifting from the demand side to the supply side. Analysts from well-known institutions have stated that discussions about a "super El Niño" phenomenon continue to circulate within trading circles, leading to increased caution among traders. Historically, El Niño weather patterns typically result in abnormally low rainfall in Southeast Asian producing regions, creating a lagged effect on palm oil yields—an impact that usually manifests gradually over 6 to 12 months after the event. The current market repricing of this risk is becoming one of the medium- to long-term drivers supporting palm oil prices.
This indicates that the market's trading focus is shifting from the short-term narrative of weak export demand to a forward-looking approach to potential supply-side contraction in the second half of 2026 and even early 2027.
Fundamental data: EU imports slow down, Indonesia faces another export compliance crisis.
From the demand side, actual data shows that imports in the EU are still slowing down. Data from the European Commission shows that as of May 24, cumulative soybean imports in the EU for the 2025/26 marketing year (starting from July 2025) reached 11.95 million tons, a year-on-year decrease of 8%; palm oil imports during the same period were 2.55 million tons, a year-on-year decrease of 4%. This data reflects the continued policy pressure on palm oil-based fuels in the European market under the Renewable Energy Directive (RED), indicating a relatively clear ceiling on medium- to long-term demand.
Meanwhile, another major variable on the supply side comes from Indonesia. The Indonesian Finance Minister confirmed that prominent local palm oil companies Wilmar International and Mustim Mas Group are under investigation for allegedly exporting palm oil with "understated invoices." If such compliance investigations expand or lead to fines or even export quota restrictions for exporters, it could affect the pace of Indonesian palm oil export supply in the short term, thereby disrupting regional prices.
Market Outlook: Short-term bias is bullish; pay attention to geopolitical and weather variables.
In summary, the palm oil market is currently experiencing a confluence of bullish factors – strengthening geopolitical risks in crude oil, rising prices across competing edible oils, favorable exchange rate conditions, and escalating El Niño expectations are all supporting prices. In the coming week, traders should closely monitor the following aspects: first, the impact of developments in the Middle East on crude oil prices; second, the latest El Niño intensity forecasts from weather models in major producing regions; and third, monthly changes in Malaysian palm oil export data, which will be a key indicator of whether this upward trend can be sustained.
Frequently Asked Questions
Q: Why does the rise in crude oil prices drive up palm oil prices?
A: Palm oil is one of the main raw materials for biodiesel production. When crude oil prices rise, the economics of biodiesel improves compared to conventional diesel, leading to increased market demand for palm oil as a fuel feedstock, which in turn drives up its price.
Q: How does El Niño affect palm oil production?
A: El Niño typically leads to reduced rainfall and increased temperatures in Southeast Asia, negatively impacting the growth and fruit ripening of oil palm trees. This effect is delayed, generally manifesting as a decrease in yield within 6 to 12 months after the El Niño event.
Q: What does Indonesia's investigation into "under-invoicing" by palm oil companies mean?
A: Underreporting invoices refers to the act of exporters declaring a price lower than the actual transaction price when making customs declarations, which is suspected of tax evasion. If the investigation confirms the violation, the company may face fines or export quota restrictions, which will affect the export supply of Indonesian palm oil and thus impact international market prices.
Q: What are the reasons for the decline in EU palm oil imports?
A: In recent years, the EU has been continuously upgrading its Renewable Energy Directive (RED), imposing stricter restrictions on palm oil-based fuels, classifying them as feedstocks with high indirect land-use change risks. These policy restrictions are the main reason for the continued decline in EU palm oil imports.
Q: What impact does the devaluation of the ringgit have on palm oil prices?
A: Palm oil is priced and traded in the Malaysian Ringgit. When the Ringgit depreciates, the same price of palm oil becomes less expensive for buyers using other currencies such as the US dollar, thus stimulating the purchasing intentions of international buyers and supporting Malaysian palm oil futures prices.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
