On Thursday (July 16), the benchmark October palm oil futures contract on the Malaysian Derivatives Exchange found buying support at the lower end of its range, closing at 4,606 ringgit per tonne, a slight increase of 5 ringgit, or 0.11%, from the previous trading day. The market exhibited typical range-bound trading characteristics, with prices attracting bargain hunters after slipping below 4,600 ringgit. However, inventory pressure in major producing countries and weakness in related vegetable oil markets limited gains, and the tug-of-war between bulls and bears continued.

Technical Analysis and Trading Range: Buying pressure emerges at lower levels

A Kuala Lumpur trader pointed out: "Crude palm oil futures are currently fluctuating between 4,500 and 4,700 ringgit per tonne, so prices below 4,600 ringgit will attract buying." This logic directly dominated the market that day, and the support from funds at the lower end of the range quickly recovered the losses.

High inventory levels at production sites indicate persistent structural pressures.

Although prices have temporarily stopped falling, the large inventory accumulated in producing countries remains the core factor suppressing the market. The head of commodities research at Sunvin Group stated bluntly, "The relatively high palm oil inventories in major producing countries like Indonesia and Malaysia are putting pressure on futures contracts." Latest data shows that Indonesian palm oil inventories surged 18.9% month-on-month at the end of May due to a sharp drop in exports, while Malaysian inventories climbed to a four-month high at the end of June as production recovered faster than demand. The continued recovery on the supply side means the market lacks the foundation for sustained price increases, and any temporary rebound faces suppression from hedging and inventory expectations.

Policy uncertainty: B50 and EU regulations create a double whammy.

Beyond inventory pressures, policy delays and uncertainties further dampened market sentiment. Bagani added, "The delayed allocation of Indonesia's B50 biodiesel blending quotas, coupled with EU deforestation policies, are both impacting palm oil prices." The prolonged delay in B50 allocations has raised doubts about the timeline for increased domestic palm oil consumption in Indonesia, pushing back the anticipated additional demand. Furthermore, EU regulations linking palm oil to deforestation have increased supply chain compliance costs and trade barriers, continuing to suppress long-term export expectations. Without clear guidance from these two policies, prices are unlikely to escape the upper limit of their current trading range.

Short-term export improvement and tariff flat

Slight signs of improvement have emerged on the demand side. Data from shipping surveyors ITS and AmSpec Agri show that Malaysian palm oil exports from July 1st to 15th increased by 4% to 12.4% compared to the same period last month, with a temporary rebound in procurement volumes partially offsetting market pessimism. Furthermore, the Malaysian Palm Oil Board announced an increase in the reference price for crude palm oil in August, but the export tariff remains unchanged at 10%. Stable tariffs indicate that trade costs have not risen further, providing mild support for near-month exports, but are unlikely to unilaterally alter the supply-demand balance.

Related oils are showing signs of divergence, and external resonance is weakening.

In related markets, the Dalian Commodity Exchange's soybean oil futures contract fell 0.34%, and the palm oil contract declined 0.71%, while soybean oil futures on the Chicago Board of Trade rose slightly by 0.18%. As part of the global vegetable oil system, palm oil prices closely follow the fluctuations of competing oil products. If US soybean oil prices fail to maintain their strength, palm oil will find it difficult to break out of its own price range based solely on its own factors.

A mix of bullish and bearish factors: The market's future direction will depend heavily on production volume and policy implementation.

The current market is at a crossroads between real pressures and expectations. Buying at the lower end of the range is based on oversold correction and improved technical patterns, but high inventory levels and policy uncertainty continue to suppress upward potential. In the coming weeks, the recovery rate of Malaysian production in July, whether exports can maintain growth, and the clarification of the details of Indonesia's B50 allocation will be key variables in breaking the current range. The market needs to find a new balance between actual inventory accumulation and policy-driven incremental growth; any substantial change on either side could trigger a directional choice. Frequently Asked Questions Question 1: Why did prices rise despite high inventory levels? The price increase was mainly driven by bargain hunting. When prices touched the lower end of the 4600 ringgit range, traders actively intervened, not because of a substantial reversal in supply and demand. Inventory pressure remains, but short-term overselling attracted funds to test the waters. Question 2: How much impact will the delayed allocation of Indonesia's B50 have on the market? The B50 involves mandatory blending of palm oil in Indonesia, a core engine for future consumption growth. The delayed allocation means a postponement of the release of additional demand, diminishing market expectations for rapid inventory reduction and suppressing bullish sentiment. Question 3: Is the export growth in July sustainable? The increase in the first half of the month was considerable, but the overall performance for the month will depend on the shipment pace in the latter half and the export competition situation in Indonesia. If Malaysia maintains its production recovery while Indonesia simultaneously accelerates sales, the export improvement effect may weaken. Question 4: How will the EU's deforestation policy affect palm oil pricing? Regulations have raised compliance costs and barriers to exports to the EU, which may compress the EU market share in the long term, forcing producing countries to seek other buyers, thereby changing global trade flows and suppressing premium margins.