Palm oil futures extended gains on Wednesday, hitting a two-week high as bullish catalysts from Indonesia’s biodiesel mandate and El Niño supply fears outweighed broader vegetable oil market weakness.

Biofuel Demand Surge Indonesia’s B50 biodiesel program, which mandates 50% palm oil-based biodiesel, is reshaping global supply-demand balances. The rollout is expected to cut palm oil exports by $2.7 billion, according to Jakarta Globe, while BusinessToday Malaysia called it a key demand catalyst. However, analysts at HLIB raised price forecasts for 2026-27, citing both the mandate and El Niño risks.

Supply Tightening El Niño fears continue to tighten global supply expectations, with ChemAnalyst reporting palm oil surges on the combination of weather risks and biodiesel demand. MPOC earlier projected CPO prices at RM4,400 to RM4,650 in July as supply outlook tightens. Thailand’s tighter palm oil export controls are also reshaping regional dynamics, per Indonesia Business Post.

Rival Oil Strength Soybean oil climbed to a three-week high as US-Iran conflict boosted biofuel demand, providing additional support to palm oil. Reuters noted palm oil rose over 1% on rival oil and crude oil strength. A weak ringgit further lifted Malaysian futures, ChemAnalyst reported.

Demand Concerns Persist Despite the rally, vegetable oil prices remain under pressure from lower global demand and increased rapeseed oil supply, according to Ukrainian sources. Crude palm oil export prices have softened, although India’s market stays firm. The India-China edible oil trade deal, expanding soybean oil trade, could also shift competitive dynamics.

Policy and Geopolitical Risks Indonesia’s B50 mandate faces fiscal and food security concerns, with Jakarta Globe calling it a risky path and Indonesia Business Post flagging energy goals versus food security. The IVPA president noted that policy, energy, climate and geopolitics will influence the global vegetable oil industry.

Takeaway for Buyers Watch for further B50 implementation details and El Niño updates; supply tightness is real, but demand headwinds from competing oils and global economic uncertainty could cap upside.