Palm oil markets are drawing support from a combination of policy-driven demand and weather risks, even as supply-side data point to higher output and inventories. The latest Malaysian benchmark for crude palm oil held near $1106 per tonne, with the global benchmark at about $1101 and Indonesia's reference price around $1030. Brent crude's rise to roughly $88 per barrel has improved the economics of biodiesel blending, reinforcing the demand outlook from mandated programs.
Biodiesel mandates tighten supply
Indonesia, Malaysia and Thailand have all raised their biodiesel mandates for 2026, a move that analysts say will divert a larger share of palm oil toward domestic fuel use. Indonesia's rollout of B50 distribution, led by state energy firm Pertamina, is a key driver. While Indonesia's first-half export growth slowed ahead of the B50 launch, the mandate is expected to keep more palm oil at home, tightening availability for the global market.
For compliance-minded buyers, the policy shift means less discretionary supply from the world's largest producer. The higher blend rates also raise the floor under palm oil prices, as fuel demand becomes a structural consumer alongside food and industrial uses.
El Niño adds a weather premium
El Niño conditions, with an ONI of +1.4, continue to hang over the market. Dry weather in Kalimantan, a major production zone, has raised concerns about future yields. Although Malaysian output rose in July—up 9.4% month-on-month to about 1.79 million tonnes—the market is looking past the immediate supply bump to potential stress in coming months.
UkrAgroConsult and other observers have flagged El Niño and biodiesel demand as key price supports, even as stocks build. Malaysia's July closing stocks increased 7.2% to about 1.43 million tonnes, and exports jumped 14.5% to 1.39 million tonnes, suggesting robust demand is absorbing much of the extra supply.
Policy signals: reference price, duties
Malaysia lowered its September crude palm oil reference price, though the export duty remains at 10%. The adjustment is modest and does not change the overall cost structure for buyers, but it signals that authorities are mindful of keeping exports competitive.
Our model outlook sees the market consolidating near current levels with a slight upward drift over the next seven sessions. The bullish technical crossover and wide BOPO support are balanced by the bearish stock build and peak seasonal output. Key risks include Indonesian policy shifts, crude price swings and speculative long liquidation.
For buyers, the combination of higher mandates, weather risk and firm energy prices suggests that palm oil will remain well-supported in the near term. The absence of live cargo surveyor data adds uncertainty, but the policy and weather fundamentals point to a market that is unlikely to weaken significantly without a change in the demand picture.