Palm Oil Edges Higher as El Niño Risk and Wide Soyoil Spread Outweigh Bearish July Stocks

Price snapshot

Malaysian CPO benchmark is about $1,109/MT, or RM4,528/MT, up 0.1% from the previous session. The World Bank palm oil benchmark is about $1,101/MT, while Indonesia’s Kemendag reference is about $1,030/MT. Brent crude is around $92/bbl, up 0.4% on the day but lower over the past seven sessions, and USD/MYR is about 4.08. The market is being pulled in both directions: El Niño supply risk and a wide soybean-oil discount are supporting CPO, while a bearish MPOB stock build and stretched speculative positioning are capping the rally.

What is pulling CPO higher

First, the technical uptrend is intact. A golden cross, positive MACD, RSI at 53 and price above the 5-, 20- and 50-day moving averages give trend-following buyers a reason to stay long. The upper Bollinger band at $1,117 is the immediate resistance, and our model sees the market drifting toward it rather than breaking down.

Second, El Niño is adding a risk premium. The ONI is +1.4°C and Kalimantan and Sarawak are dry. That matters because El Niño dryness can reduce palm yields with a six- to twelve-month lag. Buyers are therefore paying now for a potential supply shortfall later. Headlines have flagged this risk, and some point to CPO reaching RM4,819 if the dryness deepens.

Third, the soybean-oil-to-CPO spread is very wide. Soybean oil is about $1,590/MT versus CPO at $1,109/MT, a gap of $482/MT. At that spread, food and industrial buyers have a strong incentive to switch demand to palm oil, which supports physical demand and limits downside.

Fourth, Indonesia’s B50 biodiesel mandate is in force since July 2026, moving from B40 to B50. The higher blend absorbs roughly 3-4 million tonnes of palm oil per year. More domestic biodiesel use means less Indonesian palm oil available for export, tightening the global supply picture.

Fifth, Indonesia’s export policy burden is heavy at about $277/MT, split between a $129 levy and a $148 duty. That discourages Indonesian selling and shifts incremental demand toward Malaysia. The caveat is that the reference price is 77 days stale and may have changed, so the actual burden may differ.

Sixth, India’s festival demand is beginning to build. July imports were strong, and the Diwali buying window opens in about 33 days. That can support near-term demand, although the historical festival effect is often neutral and import data are conflicting.

What is pulling CPO lower

On the bearish side, MPOB July data show a clear stock build. Malaysian closing stocks rose 7.2% month-on-month to 1,429,316 tonnes, a five-month high. Production rose 9.4% to 1,792,979 tonnes, and although exports rose 14.5% to 1,392,178 tonnes, they were not enough to prevent inventory accumulation. The stocks-to-use ratio is 12.5%, which is ample, and the seasonal path points to production up another 7.0% and stocks up 11.2% next month. That supply overhang is the main reason our model keeps the upside limited.

Lower Brent crude is also a drag. Brent is around $92/bbl, up 0.4% today but down 2.3% over seven sessions. Weaker crude reduces the economics of biodiesel blending and the energy-linked demand for vegetable oil, which weighs on sentiment even if the day-to-day move is positive.

Finally, speculative long positioning is stretched. The CFTC soyoil net long is at 80,922 contracts, in the 80th percentile. That is a crowded position vulnerable to liquidation. If soyoil weakens or risk appetite turns, these longs may unwind and drag the broader vegetable-oil complex, including CPO.

Balance and what would flip it

Our model’s tally is six bullish drivers against three bearish drivers, so the upside currently has the upper hand. But the lead is modest rather than decisive. Our model outlook is for CPO at $1,109/MT with a modest bullish technical bias, capped by the bearish MPOB July stock build and peak seasonal production. It expects a choppy drift toward the upper Bollinger band at $1,117 over the next seven days, with a published path of +0.1%. Missing cargo-surveyor export pace and live soyoil and Dalian quotes widen uncertainty.

For the balance to flip bearish, the market would need to see more evidence of heavy supply, such as another above-seasonal stock build or a disappointing cargo-surveyor export pace, alongside either lower Brent or a liquidation of stretched speculative longs. FX is a neutral swing factor for now: a stronger ringgit lifts the USD CPO price, while a weak rupiah could encourage Indonesian selling, though extreme rupiah weakness may trigger export curbs.