The surge in crude oil prices has ignited bullish sentiment in palm oil, but will the MPOB report dampen this rally?
2026-07-08 18:41:05
Malaysian palm oil futures surged on Wednesday (July 8), with the most active contract breaking through the 4,600 ringgit mark to reach a near two-week closing high. The collective strength of external edible oil markets and the combined effect of geopolitical risks in the Middle East were the main drivers.
The benchmark palm oil contract for September delivery closed at 4,608 ringgit per tonne on Wednesday, up 61 ringgit, or 1.34%, the highest closing price since June 24. The direct driving force behind the market came from related edible oil markets: soybean oil futures on the Chicago Board of Trade surged 2.19%, while soybean oil and palm oil futures on the Dalian Commodity Exchange rose 0.61% and 0.38%, respectively. Paramalingam Supramaniam, director of brokerage firm Pelindung Bestari, said, "In line with the movements in the Chicago and Dalian markets, crude palm oil futures saw buying interest stimulated by tensions in the Middle East." Palm oil maintains a high price correlation with competing edible oils such as soybean oil, and the concentrated rise in external markets quickly ignited bullish sentiment in palm oil.
The underlying fuel for this surge in the edible oil sector stems from the crude oil market. The US announcement that its memorandum of understanding with Iran had "ended" reignited market concerns about potential disruptions to Middle Eastern oil supplies, causing international crude oil prices to jump by over 6%, also reaching a two-week high. This strong crude oil price directly reshaped expectations for palm oil demand in the biodiesel market—as a crucial biodiesel feedstock, higher crude oil prices have made palm oil's substitution value in the energy sector even more prominent. This chain of events attracted significant speculative and hedging buying, driving palm oil futures to continue their upward trend in afternoon trading. In short, the Middle East tensions have injected a temporary risk premium into the edible oil market, causing the biodiesel narrative to be repriced.
However, Paramalingam Supramaniam also explicitly pointed out: "Spot demand has not yet shown signs of recovery, and position adjustments ahead of the Malaysian Palm Oil Board's supply and demand report are also putting pressure on the market." Despite strong futures prices, actual downstream purchasing has not increased in tandem, and spot price increases have been weak, meaning the current rally is more driven by expectations and sentiment. Furthermore, the market is awaiting the upcoming MPOB June supply and demand report , and traders are reducing some long positions to manage risk ahead of this key data release, which has limited today's gains to some extent. If the subsequent production and inventory data exceed market expectations, the market may face a short-term correction.
The Malaysian ringgit weakened slightly by 0.17% against the US dollar during the day, making palm oil relatively cheaper for buyers holding foreign currency, providing some marginal support for prices. On the demand side, the latest data from the European Commission shows that as of June 30, 2025/26, EU soybean imports fell to 14.1 million tons, a 3% year-on-year decrease, while palm oil imports also declined by 4% to 2.9 million tons. The moderate contraction in demand from major consumption regions suggests that the medium- to long-term global vegetable oil trade trends remain uncertain, but this has not yet shaken the current short-term upward narrative.
In the coming trading days, the palm oil market faces a double test. First, the MPOB June supply and demand report will provide specific directions for production, inventory, and exports. If the accumulation of inventories in producing regions exceeds expectations, the current optimism may be dampened. Second, the subsequent developments in the Middle East will determine whether the crude oil risk premium can be sustained. Once tensions ease, the energy premium in edible oils may subsequently decline. Meanwhile, weather conditions in North American soybean producing regions and their guidance for Chicago soybean oil, as well as whether major importing countries follow suit with spot purchases, are also key variables that traders need to closely monitor. Currently, futures prices are at the intersection of sentiment and reality, and conditions for increased volatility are in place.
Question 1: Why did Malaysian palm oil futures suddenly surge on Wednesday?
Answer: The direct reason is the collective strength in the external vegetable oil and crude oil markets. Chicago soybean oil surged 2.19%, while Dalian soybean oil and palm oil rose in tandem, forming a strong-weak correlation. Meanwhile, renewed tensions between the US and Iran led to a more than 6% surge in crude oil prices, enhancing the attractiveness of palm oil as a biodiesel feedstock. Speculative buying followed suit, pushing prices to a two-week high.
Question 2: How does the tension in the Middle East affect palm oil prices?
Answer: Escalating tensions in the Middle East have driven up crude oil prices, and palm oil is a key raw material for biodiesel. The higher the crude oil price, the more economical biodiesel becomes. The market anticipates increased demand for palm oil in the industrial sector, and this expectation directly translates into buying interest, transmitting the risk premium to the vegetable oil market through the energy channel.
Question 3: The analyst mentioned the pressure of position adjustments ahead of the MPOB report. What does this mean?
Answer: The Malaysian Palm Oil Board (MPOB) releases monthly data on Malaysian palm oil supply and demand, inventory, and exports. Leading up to the data release, traders tend to close out some positions to mitigate uncertainty. Even with strong bullish sentiment, this position adjustment can create downward pressure, limiting gains. Unexpectedly negative data could trigger a deeper pullback.
Question 4: Spot demand has not recovered, so why are futures prices still rising?
Answer: This indicates that the current price surge is driven more by expectations and external sentiment than by a genuine shortage in the spot market. Futures prices have already reflected the possibility of improved supply and demand or rising costs in the futures market. As long as these expectations are not disproven, futures prices can deviate from spot prices. However, if subsequent reports show increased inventory pressure while spot demand remains sluggish, futures prices will face the risk of reverting to a more balanced approach.
Question 5: What does the decline in EU import data mean for the market?
Answer: The EU is a major global consumer of vegetable oils. The simultaneous decline in its soybean and palm oil imports indicates a temporary weakness in demand in the region, possibly related to factors such as the use of alternative raw materials and crushing margins. This somewhat weakens the optimistic narrative of long-term global vegetable oil demand, but its downward pressure on short-term prices is limited. Currently, the market focus is more on geopolitical factors and supply and demand reports.
The surge in crude oil prices and the soaring price of US soybean oil provided a double boost.
The benchmark palm oil contract for September delivery closed at 4,608 ringgit per tonne on Wednesday, up 61 ringgit, or 1.34%, the highest closing price since June 24. The direct driving force behind the market came from related edible oil markets: soybean oil futures on the Chicago Board of Trade surged 2.19%, while soybean oil and palm oil futures on the Dalian Commodity Exchange rose 0.61% and 0.38%, respectively. Paramalingam Supramaniam, director of brokerage firm Pelindung Bestari, said, "In line with the movements in the Chicago and Dalian markets, crude palm oil futures saw buying interest stimulated by tensions in the Middle East." Palm oil maintains a high price correlation with competing edible oils such as soybean oil, and the concentrated rise in external markets quickly ignited bullish sentiment in palm oil.
Geopolitical risk premium returns, biodiesel expected to be repriced
The underlying fuel for this surge in the edible oil sector stems from the crude oil market. The US announcement that its memorandum of understanding with Iran had "ended" reignited market concerns about potential disruptions to Middle Eastern oil supplies, causing international crude oil prices to jump by over 6%, also reaching a two-week high. This strong crude oil price directly reshaped expectations for palm oil demand in the biodiesel market—as a crucial biodiesel feedstock, higher crude oil prices have made palm oil's substitution value in the energy sector even more prominent. This chain of events attracted significant speculative and hedging buying, driving palm oil futures to continue their upward trend in afternoon trading. In short, the Middle East tensions have injected a temporary risk premium into the edible oil market, causing the biodiesel narrative to be repriced.
The spot market has not yet followed suit, and bulls remain restrained ahead of the MPOB report.
However, Paramalingam Supramaniam also explicitly pointed out: "Spot demand has not yet shown signs of recovery, and position adjustments ahead of the Malaysian Palm Oil Board's supply and demand report are also putting pressure on the market." Despite strong futures prices, actual downstream purchasing has not increased in tandem, and spot price increases have been weak, meaning the current rally is more driven by expectations and sentiment. Furthermore, the market is awaiting the upcoming MPOB June supply and demand report , and traders are reducing some long positions to manage risk ahead of this key data release, which has limited today's gains to some extent. If the subsequent production and inventory data exceed market expectations, the market may face a short-term correction.
Exchange rates and EU data provide marginal variables
The Malaysian ringgit weakened slightly by 0.17% against the US dollar during the day, making palm oil relatively cheaper for buyers holding foreign currency, providing some marginal support for prices. On the demand side, the latest data from the European Commission shows that as of June 30, 2025/26, EU soybean imports fell to 14.1 million tons, a 3% year-on-year decrease, while palm oil imports also declined by 4% to 2.9 million tons. The moderate contraction in demand from major consumption regions suggests that the medium- to long-term global vegetable oil trade trends remain uncertain, but this has not yet shaken the current short-term upward narrative.
Market Outlook: Report Implementation and Geopolitical Evolution
In the coming trading days, the palm oil market faces a double test. First, the MPOB June supply and demand report will provide specific directions for production, inventory, and exports. If the accumulation of inventories in producing regions exceeds expectations, the current optimism may be dampened. Second, the subsequent developments in the Middle East will determine whether the crude oil risk premium can be sustained. Once tensions ease, the energy premium in edible oils may subsequently decline. Meanwhile, weather conditions in North American soybean producing regions and their guidance for Chicago soybean oil, as well as whether major importing countries follow suit with spot purchases, are also key variables that traders need to closely monitor. Currently, futures prices are at the intersection of sentiment and reality, and conditions for increased volatility are in place.
Frequently Asked Questions
Question 1: Why did Malaysian palm oil futures suddenly surge on Wednesday?
Answer: The direct reason is the collective strength in the external vegetable oil and crude oil markets. Chicago soybean oil surged 2.19%, while Dalian soybean oil and palm oil rose in tandem, forming a strong-weak correlation. Meanwhile, renewed tensions between the US and Iran led to a more than 6% surge in crude oil prices, enhancing the attractiveness of palm oil as a biodiesel feedstock. Speculative buying followed suit, pushing prices to a two-week high.
Question 2: How does the tension in the Middle East affect palm oil prices?
Answer: Escalating tensions in the Middle East have driven up crude oil prices, and palm oil is a key raw material for biodiesel. The higher the crude oil price, the more economical biodiesel becomes. The market anticipates increased demand for palm oil in the industrial sector, and this expectation directly translates into buying interest, transmitting the risk premium to the vegetable oil market through the energy channel.
Question 3: The analyst mentioned the pressure of position adjustments ahead of the MPOB report. What does this mean?
Answer: The Malaysian Palm Oil Board (MPOB) releases monthly data on Malaysian palm oil supply and demand, inventory, and exports. Leading up to the data release, traders tend to close out some positions to mitigate uncertainty. Even with strong bullish sentiment, this position adjustment can create downward pressure, limiting gains. Unexpectedly negative data could trigger a deeper pullback.
Question 4: Spot demand has not recovered, so why are futures prices still rising?
Answer: This indicates that the current price surge is driven more by expectations and external sentiment than by a genuine shortage in the spot market. Futures prices have already reflected the possibility of improved supply and demand or rising costs in the futures market. As long as these expectations are not disproven, futures prices can deviate from spot prices. However, if subsequent reports show increased inventory pressure while spot demand remains sluggish, futures prices will face the risk of reverting to a more balanced approach.
Question 5: What does the decline in EU import data mean for the market?
Answer: The EU is a major global consumer of vegetable oils. The simultaneous decline in its soybean and palm oil imports indicates a temporary weakness in demand in the region, possibly related to factors such as the use of alternative raw materials and crushing margins. This somewhat weakens the optimistic narrative of long-term global vegetable oil demand, but its downward pressure on short-term prices is limited. Currently, the market focus is more on geopolitical factors and supply and demand reports.
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