Policy shifts across major palm oil producing and consuming economies are tightening the demand picture for crude palm oil (CPO) even as supply fundamentals remain ample. For compliance-minded buyers, the interplay between energy policy and deforestation regulation is becoming the central price driver beyond weather and stocks.

Biodiesel mandates underpin demand

Indonesia, Malaysia and Thailand have all raised their biodiesel mandates for 2026, with Indonesia's state energy firm Pertamina now running nationwide B50 distribution. The higher blend rate directly increases domestic CPO consumption, diverting a larger share of output away from export markets. India's central bank has linked the broad-based rise in edible oil prices to this biofuel-driven demand, citing Indonesia's B50 mandate as a key factor.

With Brent crude trading near $90 per barrel, the economics of palm-based biodiesel remain favourable relative to fossil diesel, supporting the viability of higher mandates. Our model outlook sees firmer crude as the primary near-term driver for CPO, with prices stabilizing around $1106 per tonne after a crude-led rally. However, the demand boost from biodiesel is partially offset by high Malaysian stocks and peak seasonal production.

EU deforestation rules and trade competitiveness

The European Union's deforestation regulation is set to redefine export competitiveness for African producers, according to recent analysis. For buyers sourcing from Africa, compliance with EU traceability requirements will become a decisive factor in supply chain decisions. Producers that can demonstrate deforestation-free supply chains may gain preferential access, while those unable to meet documentation standards face exclusion from the EU market.

This regulatory pressure comes alongside duty-free edible oil imports from Nepal into India, which are emerging as a concern for domestic Indian producers. The combination of EU compliance costs and regional trade distortions is reshaping traditional palm oil trade routes, favouring suppliers with robust sustainability infrastructure.

Market outlook

Malaysian July data showed CPO production at 1.79 million tonnes, up 9.4% month-on-month, with closing stocks rising 7.2% to 1.43 million tonnes. Exports grew a stronger 14.5% to 1.39 million tonnes, while imports fell sharply. The build-up in stocks, together with peak production, limits upside despite biodiesel-driven domestic absorption.

A developing El Niño, with ONI at +1.4 and notably dry conditions in Kalimantan, offers lagged bullish support for prices, though the effect typically materializes over several months. Our model outlook expects modest upward drift over the next seven sessions, with crude oil as the main catalyst while position squaring and technical resistance cap gains.

For buyers, the key watch points are the pace of Indonesia's B50 rollout, EU enforcement timelines on deforestation compliance, and whether African suppliers can adapt quickly enough to retain European market access.