On Thursday (July 9), the September palm oil contract on the Malaysian Derivatives Exchange fell 15 ringgit to close at 4,594 ringgit per tonne. Despite a sudden escalation in the Middle East that had driven up crude oil prices, market sentiment remained dominated by stronger uncertainty, and prices continued their weak and volatile trend. Prices are expected to remain range-bound in the short term, noting that Malaysian palm oil production remained robust in June, and supply-side pressures are gradually becoming apparent.

Indonesia's B50 quota remains unresolved, freezing bullish momentum.

The core variable suppressing the market remains the delayed implementation of Indonesia's B50 biodiesel quotas . The continued ambiguity surrounding the Indonesian B50 biodiesel allocation policy has stalled the upward momentum of palm oil. Traders are currently closely monitoring the allocation amounts and total scale for subsidized and non-subsidized participants, as these are key indicators of the additional palm oil demand that the B50 project will generate. Until policy details are released, the market will struggle to effectively price in the second half of the year's balance sheet, leaving bulls without a driving force while bears repeatedly test the waters based on expectations of increased production in producing regions.

Crude oil price surge and buying pressure creating a buffer

The sharp escalation of geopolitical tensions in the Middle East added another variable this week. Following the US strike on Iran, Brent and WTI crude oil futures surged to their highest levels since June 22nd on Wednesday, theoretically significantly improving the biodiesel blending margin for palm oil. The soaring energy prices, coupled with some emerging palm oil purchasing interest this week, helped to limit the decline. It can be seen that the crude oil premium and essential buying are acting as a buffer below the price level, preventing panic selling during the policy vacuum, but this is not enough to reverse the volatile pattern.

With both bullish and bearish factors at play, the focus is on policy implementation and the spillover of crude oil prices.

Palm oil is currently caught in a tug-of-war between bullish and bearish logic. On the supply side, robust Malaysian production in June reinforced expectations of a production increase cycle; on the demand side, the uncertainty surrounding Indonesia's B50 policy makes it impossible to confirm increased demand for biodiesel, while high geopolitical risks maintain potential upside for crude oil. This combination means that prices will be extremely sensitive to news. If the final quota announced by the Indonesian Ministry of Energy is lower than market expectations, or the subsidy ratio is conservative, then even if crude oil remains strong, palm oil's upward movement will be limited; conversely, a clear implementation of the quota could trigger a concentrated reassessment of the supply-demand gap. Going forward, traders should focus on the specific allocation announcement of Indonesia's B50 quota, Malaysia's export pace throughout the month, and the actual disruptions to crude oil supply caused by the Middle East situation. These three factors will collectively shape the upper and lower limits of palm oil's volatility in the third quarter.

Frequently Asked Questions

Why did palm oil prices fall despite a surge in crude oil prices?
The current market pricing is not driven by crude oil price transmission, but rather by the uncertainty surrounding Indonesia's B50 policy. While high oil prices can improve biodiesel profits, additional palm oil demand cannot materialize until the actual policy quotas are clarified. Coupled with expectations of increased production in producing countries, the market is more likely to face downward pressure.

Why does Indonesia's B50 quota have such a significant impact?
Indonesia is one of the world's largest consumers of palm oil, and the full implementation of the B50 program would significantly increase domestic palm oil consumption. The amount of subsidized and non-subsidized quotas directly determines the size of the additional increase, and the market needs this data to correct the supply and demand balance. Therefore, the ambiguity of the policy directly freezes the bullish logic.

What are the main factors currently supporting palm oil prices?
There are two main reasons: First, the tensions in the Middle East have driven up crude oil prices, providing a premium basis for palm oil's energy attributes; second, both essential and speculative buying emerged at opportune times this week, providing support at lower levels.

Can the increased production in the producing areas be absorbed by the demand from first-time homebuyers?
The demand from essential buyers reflects more of a temporary restocking effort and price advantage than a trend of increased supply. If production in Malaysia and Indonesia continues to recover, current purchasing power alone will be insufficient to fully offset supply pressures, and the market still needs new policy guidance.

What are the most noteworthy events to follow?
The key events are Indonesia's official announcement regarding the detailed allocation of B50 quotas, followed by Malaysia's full-month export data and production performance in producing countries, and the continued disruption to crude oil supply caused by the Middle East conflict. These three factors will determine whether palm oil can break out of its current range-bound trading pattern.