On Monday (July 6), Malaysian palm oil futures for September delivery, the benchmark contract on the Bursa Malaysia Derivatives Exchange, rebounded strongly, closing at 4,550 ringgit per tonne, up 70 ringgit on the day, a gain of 1.56%, ending a two-day pullback. The day saw mixed signals, with weakening crude oil prices and high inventory expectations putting downward pressure on the market. However, a surge in related vegetable oil prices and the depreciation of the ringgit ultimately dictated the market direction.

Competition in the edible oil market rallied across the board, with the ripple effect outweighing the negative news.

Overnight, soybean oil futures on the Chicago Board of Trade surged 1.93%, while the main soybean oil and palm oil contracts on the Dalian Commodity Exchange also closed higher by 1.03% and 1.06%, respectively. The simultaneous strength of the three major edible oils created a clear sector-wide resonance. A trader in Kuala Lumpur commented, "The strong performance of competitors, with gains also exceeding 1%, provided positive support." Because palm oil is highly substitutable with soybean oil and sunflower oil in the global vegetable oil market, any sharp fluctuations in the prices of substitutes will be transmitted through price spreads, directly reshaping demand expectations for palm oil. The concentrated rise in competing edible oils that day quickly attracted a return of buying interest, allowing palm oil to break free from the downward momentum of the previous two days.

Weak crude oil prices and a depreciating currency create a short-term hedging effect between bullish and bearish forces.

Crude oil prices are showing bearish signals. OPEC+ agreed to further ease production restrictions starting in August, while exports from major oil-producing countries along the Strait of Hormuz are gradually recovering, putting pressure on international oil prices. Theoretically, weaker crude oil futures should suppress the industrial consumption prospects of palm oil, reducing its cost-effectiveness as a biodiesel feedstock. However, this drag was offset by another force during the day: the Malaysian ringgit depreciated by 0.37% against the US dollar. A weaker ringgit directly reduces the purchasing costs for buyers holding foreign currency, which is conducive to marginal improvement in export bidding. The interplay of bullish and bearish factors has prevented a one-sided downward pressure, instead creating room for funds to take long positions in the edible oil sector.

Inventory expectations are pointing to a peak for the same period last year, but this has not yet shaken market sentiment.

A survey by a well-known institution indicates that Malaysian palm oil inventories are likely to climb to a record high for the month in June, stemming from production growth significantly outpacing demand growth. This forward-looking data paints a picture of a easing supply situation, and if confirmed by official data, it will confirm an inventory inflection point and exert medium-term pressure on the market. However, as of Monday's close, the market did not trade this anticipated negative news, clearly indicating that funds are currently more inclined to price in the strength of external vegetable oils. Nevertheless, inventory pressure has not disappeared; it is merely temporarily masked by sentiment. Once the rise in external edible oil prices slows, inventory realities will quickly return to the trading focus and become a key variable for testing support levels.

The focus will now shift to official reports and the pace of policy implementation in Indonesia.

The short-term market logic remains closely tied to the price spread of vegetable oils, but several upcoming events could disrupt this pattern. The upcoming MPOB report from the Malaysian Palm Oil Board is the primary focus. If production and inventory data confirm or even exceed the bearish assessment in the survey, futures prices will need to recalibrate their supply and demand perspectives. Meanwhile, traders are increasingly focused on the implementation progress of Indonesia's B40 biodiesel policy. Once its mandatory blending timeline is clarified, it will directly lock in substantial industrial demand for palm oil, offsetting the impact of inventory accumulation. Furthermore, whether high-frequency export shipping data shows a demand recovery in early July, and the actual performance of crude oil production increases, will all influence the future direction of palm oil prices. These interplaying factors will collectively shape the price trajectory for the next phase.

Frequently Asked Questions
Question 1: Why did palm oil prices rise sharply despite record inventory survey expectations?
A: The trading logic that day was dominated by the strong performance of external vegetable oils. Chicago soybean oil and Dalian edible oils both surged, and palm oil, as a substitute, passively followed suit. In addition, the depreciation of the ringgit provided a buffer for export costs, and the potential negative impact of inventory was temporarily ignored by the market and not reflected in prices.

Question 2: How does the decline in crude oil prices affect palm oil?
A: Lower crude oil prices reduce the economic appeal of palm oil-based biodiesel and dampen industrial demand. However, in this recent decline, this negative impact was offset by currency depreciation and rising prices of competing oils, and did not become the dominant force.

Question 3: What is the actual impact of the devaluation of the ringgit on palm oil prices?
A: After the devaluation of the ringgit, palm oil priced in foreign currencies such as the US dollar became relatively cheaper, which could stimulate export demand to some extent, providing marginal support for prices and partially offsetting the pressure from weak crude oil and inventory expectations.

Question 4: What risks does an inventory survey conducted by a well-known institution imply?
A: The survey suggests that Malaysian inventories may rise to a record high for the same period in June, shifting the supply-demand balance towards a more relaxed trend. If subsequent official MPOB data confirms this trend, medium-term prices will face downward pressure from the inventory inflection point, especially when external vegetable oil price movements weaken, making a downward correction more likely.

Question 5: What are the key variables that need to be closely monitored going forward?
A: The most direct indicator is the official MPOB supply and demand report, which verifies production and inventory levels. In addition, the pace of implementation of Indonesia's B40 biodiesel policy, whether high-frequency export data reflects a demand recovery, and the trend of crude oil prices against the backdrop of increased production will all determine which side the balance of power in the battle between bulls and bears will tilt towards.