Malaysian crude palm oil (CPO) futures held steady near $1,100 per metric tonne (RM4,502) on Tuesday, unchanged from the previous session. The global palm oil benchmark tracked by the World Bank was quoted around $1,105/MT, while Indonesia’s Kemendag reference price stood about $1,030/MT. Brent crude, a key driver of biodiesel blending economics, rose 1.6% on the day to $85/bbl but has lost 3% over the past week.

What is pushing palm oil UP

The most immediate support comes from the wide soybean-to-palm oil price spread (BOPO). Soybean oil now commands a $481/MT premium over palm, a level that makes palm the cheaper option for global buyers. This spread incentivises demand switching, as importers in price-sensitive markets like India and Africa increasingly favour palm over soy oil. While the effect filters through slowly – soy oil values are a monthly average – it provides a floor under palm prices.

Longer-term, a strengthening El Niño event is raising eyebrows. The Oceanic Niño Index (ONI) has climbed to +1.4°C, signalling a moderate-to-strong event. Historically, such conditions lead to moisture stress in key Asian palm belts after a six- to twelve-month lag, curbing yields and tightening supply. Though the near-term impact on output is limited, the market is beginning to price in potential production challenges for late 2026 and early 2027.

Technical signals paint a mildly constructive short-term picture. The MACD histogram remains positive, and a golden cross of the 5- and 20-day simple moving averages suggests that an uptrend may be in play. With the relative strength index (RSI) at 47 – not yet overbought – there is room for further technical buying. The Malaysian ringgit’s marginal strengthening against the US dollar also lifts ringgit-denominated CPO in dollar terms, though the move was small.

What is pushing palm oil DOWN

On the bearish side, the seasonal surge in production is in full swing. MPOB data for June showed Malaysian CPO output rising 8.1% month-on-month to 1.64 million tonnes, pushing closing stocks 3.7% higher to 1.33 million tonnes. The stocks-to-use ratio eased to 13.0%, indicating ample supply. With peak output typically running from July to October, further inventory builds are likely, capping upside.

Crude oil’s 3% slide over the past week to $85/bbl has sapped biodiesel enthusiasm. Palm-based biodiesel margins shrink when crude falls, making it harder for palm to compete as a feedstock. While Brent bounced 1.6% on the day, the weekly loss still weighs on sentiment and the economics of discretionary blending mandates.

Speculative positioning in the broader vegetable-oil complex adds a layer of fragility. Managed money net long positions in CBOT soybean oil have retreated by 15,000 contracts from an 85th percentile high. Crowded long bets raise the risk of a disorderly unwind, which would spill over into palm oil markets given their interconnectedness. Traders appear cautious, and any catalyst – such as a disappointing export figure – could trigger selling.

Indonesia, the world’s largest palm oil exporter, continues to add supply to global channels. A weak rupiah (USD/IDR at 17,989) makes Indonesian shipments more competitive, encouraging aggressive exports. This regional supply pressure limits Malaysia’s pricing power, even as Jakarta’s official levy and reference price mechanisms remain opaque.

Where the balance lies

Our model outlook, which synthesises these factors, gives a genuinely balanced picture – four bullish and four bearish signals are in play. For the next seven days, however, the scales tilt slightly to the downside. Peak production, rising stocks, and recent crude oil softness are likely to drag CPO somewhat lower, with a wide BOPO spread and supportive technicals merely cushioning the decline. Market positioning ahead of the next MPOB report (expected in about a week) and the risk of speculative long liquidation inject further uncertainty. To flip the balance decisively bullishly would require a clear disruption to the seasonal production uptrend – for instance, a sharp dry spell in Malaysia – or a sudden surge in crude oil above $90/bbl. Conversely, a break below $1,050/MT could open the door if stocks build faster than expected or if US soy oil futures extend their decline.