On Monday (July 20), the benchmark October contract for crude palm oil futures on the Malaysian Derivatives Exchange (BMD) surged by 45 ringgit to close at 4,642 ringgit per tonne, hitting a near one-month high during the session. The market was boosted by multiple positive factors: escalating tensions in the Middle East pushed up crude oil prices, CBOT soybean oil and Dalian Commodity Exchange (DCE) edible oils both strengthened, and renewed expectations of El Niño fueled a concentrated release of bullish sentiment.

Energy market disturbances triggered a jump in prices for edible oils.

Brent crude oil surged over 2% in Asian trading, breaking through the $90 per barrel mark, due to concerns about shipping restrictions in the Strait of Hormuz caused by escalating tensions between the US and Iran. Although the Iranian Foreign Ministry later hinted at resuming negotiations based on national interests, causing oil prices to give back some gains, the morning's energy market euphoria set a strong tone for palm oil's opening. The Dalian Commodity Exchange's soybean oil futures contract closed up 0.58%, while palm oil futures rose 1.56%; CBOT soybean oil also recorded a 0.26% increase. Anilkumar Bagani, head of commodities research at brokerage Sunvin Group, noted, "BMD crude palm oil futures opened with a gap up, following the bullish rebound in energy prices and CBOT soybean oil futures." He also emphasized, "Renewed discussions about a super El Niño are helping palm oil prices rise." Strong crude oil directly improves the economics of palm oil as a biodiesel feedstock, and this linkage became the core logic behind the morning's bullish sentiment.

El Niño signals reinforce the narrative of long-term production cuts.

Long-term supply concerns have once again become the focus of the market. The Malaysian Meteorological Department revealed to the media that with the strengthening of El Niño , record-breaking high temperatures are expected next year, which will inevitably threaten palm oil yields and extraction rates. Meanwhile, the latest report from the US Climate Prediction Center (CPC) shows that El Niño has strengthened in the past month and is predicted to last at least until the end of 2026, and possibly into early 2027. This series of official warnings provides new evidence for the narrative of medium- to long-term supply contraction. However, there is a difference in timing between long-term production reduction expectations and immediate supply and demand. Currently, Malaysia is still in a seasonal production increase cycle. If the weather does not substantially damage production in the short term, the market, after factoring in excessively high long-term premiums, may face a period of spot pressure. Therefore, the market is currently engaged in a game between strong expectations and weak reality.

Discrepancies in export data reflect uncertainty in demand.

High-frequency export data released on the same day showed a clear divergence. AmSpec Agri Malaysia data showed that Malaysian palm oil exports fell 0.9% month-on-month from July 1-20; while Intertek Testing Services (ITS) data recorded a 4.1% month-on-month increase during the same period. This discrepancy complicates demand assessments. David Ng, a trader at Iceberg X in Kuala Lumpur, believes, "Palm oil prices rose following the strength of soybean oil and crude oil, with renewed tensions in the Middle East also providing support. Expectations of improved export demand have also boosted market sentiment." According to his assessment, the resistance level for crude palm oil futures is at 4650 ringgit/ton , and the support level is at 4500 ringgit/ton . The market is currently very close to its target resistance area; whether exports can subsequently improve as expected will determine whether the bulls can build momentum for a breakout.

Game focus and latent variables

In summary, the current upward momentum in palm oil is primarily driven by energy premiums and forward weather premiums, rather than immediate supply and demand tightness. Geopolitical risk premiums in crude oil and CPC's confirmation of the El Niño continuation provide dual support based on expectations. However, against the backdrop of a peak production season, if export data lacks a consistent positive signal, the pressure of inventory replenishment will gradually become apparent. In the coming trading days, the market needs to closely monitor two major variables: first, the impact of the Middle East situation on crude oil prices, which will continue to transmit sentiment to palm oil through the biodiesel route; and second, whether subsequent export data from AmSpec and ITS can converge to verify the resilience of demand. If actual exports fail to reflect optimistic expectations, a consolidation after approaching the 4650 ringgit resistance level given by David Ng will be unavoidable. From a medium- to long-term perspective, the evolution of El Niño and its substantial impact on 2027 production are the core anchors determining the trend direction.

Frequently Asked Questions

1. Why did palm oil prices hit a near one-month high during the peak production season? This surge was not due to tight immediate supply, but rather driven by external market transmission and long-term expectations. Crude oil prices jumped due to geopolitical risks, increasing the attractiveness of palm oil as a biodiesel feedstock, with CBOT soybean oil and Dalian edible oil prices also strengthening. Meanwhile, El Niño forecasts reinforced medium- to long-term production reduction expectations, with longer-term contracts incorporating weather premiums first, thus driving up near-term prices. 2. When will El Niño actually impact palm oil production? Palm trees react to weather changes with a lag; the impact of drought and high temperatures on fresh fruit bunch yield typically takes 6-12 months to fully materialize. Currently, the US Climate Prediction Center warns that El Niño may extend into early 2027, meaning the window for substantial production reductions is likely to fall in 2027. Current trading reflects a risk premium at the expectation level. 3. How should we interpret the contrasting export data from AmSpec and ITS during the same period? The two institutions have different sample ranges and statistical time points, and such discrepancies are not uncommon. This reflects the current uncertainty in the demand outlook, and the market needs to wait for data in the coming weeks to verify the trend. If the growth of ITS fails to continue, the optimistic expectations for improved exports will face revision. 4: What is the transmission logic of crude oil prices to palm oil? Rising crude oil prices directly increase diesel costs, thereby expanding the profit margin of palm oil-based biodiesel, incentivizing biodiesel blending and export demand in major producing countries such as Indonesia and Malaysia, thus marginally increasing industrial consumption of palm oil and creating price linkage. 5: Where are the key points of contention in the market right now? The market is currently in a phase of struggle between strong expectations and weak reality. Energy premiums and the El Niño narrative provide strong support for expectations, but the seasonal increase in production combined with differing export demand creates real spot pressure. Traders are closely watching whether the 4650 ringgit resistance level is effectively breached and whether high-frequency export data can provide directional guidance.