On Wednesday (July 15), crude palm oil futures on the Bursa Malaysia Derivatives Exchange halted a two-day rebound, with the benchmark September contract closing down 4 ringgit, or 0.09%, at 4,569 ringgit per tonne. Trading was thin throughout the day, with prices hovering within a narrow range and lacking clear directional drivers.

During a period of news vacuum, market sentiment was low.

The direct cause of the market pullback was the lack of strong signals from both the macro and industry sectors. Paramalingam Supramaniam, director of Pelindung Bestari, a brokerage firm in Selangor, pointed out, "Futures are in a range-bound trading pattern, with no major news or changes in sentiment in the market." He further explained that although some participants have factored in the El Niño risk into their pricing, demand remains relatively weak, coupled with uncertainty stemming from the latest developments in the Middle East, resulting in a lack of buying interest at higher prices. On the same day, the Dalian Commodity Exchange's soybean oil futures contract rose slightly by 0.08%, the palm oil futures contract rose by 0.02%, and soybean oil prices on the Chicago Board of Trade rose by 0.69%, but the correlation failed to effectively boost the Malaysian market.

Escalating tensions in the Middle East and rising oil prices constitute short-term variables.

Volatility in the crude oil market has added a potential support dimension for palm oil. US President Trump's reimposition of a naval blockade on Iranian ports, followed by the Iranian Revolutionary Guard's threat to close "all other export corridors beneficial to the US and its allies," escalated geopolitical tensions and pushed international crude oil prices up by approximately 1%. Theoretically, stronger crude oil should increase the price competitiveness of palm oil as a biodiesel feedstock. However, this transmission chain is currently suppressed because the price difference between diesel and palm oil is not favorable—as MPOC CEO Belvinder Sron stated, the marginal pull of biodiesel's economics on crude palm oil is weakened because diesel futures prices are already lower than palm oil prices.

Indonesia's mandatory B50 policy is reshaping the medium- to long-term supply and demand landscape.

The real factor influencing the pricing logic of longer-term contracts is Indonesia's mandatory blending policy for B50 biodiesel , which officially came into effect on July 1st. The blending ratio of palm oil-based biodiesel in diesel fuel has increased from 40% to 50%, which will systematically alter global palm oil trade flows. Belvinder Sron, CEO of the Malaysian Palm Oil Council, provided a detailed assessment. She estimates that the full implementation of B50 will absorb an additional 3 million tons of palm oil annually, increasing Indonesia's demand for palm oil in biodiesel to approximately 16 million tons, and raising total domestic consumption to approximately 26 million tons, equivalent to 52% of its 2025 production. This means the exportable share will drop to 48% of production, compared to approximately 68% in the B20 era of 2019. As a result, palm oil's share in global edible oil trade has already fallen from 56% in 2019 to 49% in 2025. Sron explicitly pointed out that as the world's second-largest palm oil producer, Malaysia will be a "natural alternative supply source" for Indonesia's tightened export supply, potentially consolidating its existing market while expanding its share in some destinations. However, she also emphasized that the extent of the benefits still needs to consider several variables, including global demand conditions and the supply and price competitiveness of alternative oils—especially soybean oil.

Structural bottom and upward pressure coexist

Belvinder Sron believes that higher mandatory biodiesel blending rates typically create a structural floor for crude palm oil prices, as more production is locked into the domestic market, reducing export surpluses. She predicts that crude palm oil prices will trade between 4,300 and 4,700 ringgit per tonne in the second half of 2026, supported by tightening supply prospects in Indonesia and rising El Niño risks. However, she adds that further upside will face multiple obstacles. Firstly, high vegetable oil inventories in major importing markets like China and India reduce the urgency for restocking. Secondly, as mentioned earlier, the reversal of the price spread between diesel and palm oil weakens the economic support for biodiesel. This mixed picture means that while there is policy support, the pace of upward movement is constrained by demand and energy price ratios.

Key points to focus on next

Recent data reveals subtle divergences on the demand side. High-frequency export data from July 1-15 shows a discrepancy: AmSpec Agri indicates a 4% month-on-month increase in Malaysian palm oil exports, while Intertek Testing reports a 12.4% increase. This difference suggests that the subsequent export pace remains to be seen. Furthermore, data released by the Indonesian Palm Oil Association shows that in May, the country's palm oil and refined product exports were only 1.996 million tons, a sharp year-on-year decrease of 25.1%, clearly confirming the tightening trend in export supply. During the same period, Malaysia raised its August reference price for crude palm oil to maintain a 10% export tariff, keeping the tariff structure stable. In the coming period, traders need to closely monitor the actual evolution of the El Niño phenomenon, the continued impact of Middle East geopolitical disturbances on crude oil, and actual export data after the implementation of Indonesia's B50 policy. These variables will collectively determine the final equilibrium position of prices between a structural bottom and multiple pressures.

Frequently Asked Questions

Why did palm oil prices fall on July 15th? The lack of significant market guidance, weak demand sentiment, and uncertainty in the Middle East kept participants on the sidelines, leading to profit-taking and a slight decline in the contract price within its range. Why did Indonesia's mandatory B50 policy have such a significant impact on palm oil prices? The B50 increases the blending ratio of palm oil-based biodiesel from 40% to 50%, significantly increasing domestic palm oil consumption in Indonesia, squeezing export supply, and thus creating expectations of tightening supply globally, providing structural support for prices. What specific benefits can Malaysia gain from the B50 policy? With reduced Indonesian exports, importing countries will seek alternative supplies. As the second-largest producer, Malaysia is expected to absorb some of the shifted demand, consolidating its existing market and expanding its share. However, its benefits will be constrained by the prices of alternative oils such as soybean oil. What are the main factors currently limiting palm oil price increases? Ample vegetable oil inventories in major importing countries like China and India have reduced the urgency of procurement; simultaneously, diesel prices are now lower than palm oil futures prices, weakening the economic viability of biodiesel and diminishing the ripple effect of rising crude oil prices. What variables should be closely monitored in the future? The actual development and intensity of El Niño, the persistence of crude oil premiums brought about by the Middle East geopolitical situation, Indonesia's monthly export data after implementing B50, and the trend of high-frequency export data from Malaysia are all key factors in determining the direction of the supply-demand balance.