Palm oil markets are firming as El Niño conditions tighten supply expectations, with benchmark Malaysian crude palm oil (CPO) futures closing higher on renewed concerns over dry weather in key growing regions. The Malaysian benchmark settled near $1,144 per metric ton, up 0.2% from the previous session, equivalent to MYR 4,613. Global benchmarks hovered around $1,101, while Indonesia’s reference price stood at about $997.
Supply concerns mount
An Indonesian producer group has warned that El Niño will crimp output, adding to market anxiety as dry conditions persist across Sumatra, Riau, and Kalimantan. These regions are critical to global supply, and any shortfall could tighten availability for buyers, especially as biodiesel blending mandates—such as Indonesia’s B50 program—are expected to increase domestic consumption.
Malaysian authorities, including the Malaysian Palm Oil Board (MPOB) and the Commodities and Plantations Ministry, have signaled readiness to assist smallholders in mitigating El Niño impacts, according to statements reported by Bernama and Astro Awani. This support is seen as a buffer against production losses, though the full effect of the dry spell remains uncertain.
Demand-side pressure from B50
Indonesia’s B50 biodiesel program now reaches 90% of Pertamina fuel stations, according to Jakarta Globe. This expansion underscores the growing domestic appetite for palm oil as a fuel feedstock, which could divert supply away from export markets. With Brent crude near $89 per barrel, higher energy prices also support biodiesel economics, potentially making palm oil more attractive for fuel use.
Price outlook
Industry body MPOC projects CPO prices will stay above MYR 4,600 in September, citing tightening supply and geopolitical disruptions. The recent rebound in CPO futures aligns with that view, as traders price in reduced output expectations.
However, the supply picture is not uniformly tight. MPOB data for July 2026 showed Malaysian CPO production rose 9.4% month-on-month to 1.79 million tons, while closing stocks increased 7.2% to 1.43 million tons. Exports jumped 14.5% to 1.39 million tons, but imports fell sharply by 51.9% to just under 50,000 tons. The stock build offers some cushion against price spikes.
Mixed signals
Our model outlook sees CPO consolidating near $1,144 after a late-August pullback, with an upside bias supported by El Niño fears and a wide soy-palm spread. Yet ample Malaysian stocks, peak production, and seasonally soft September demand could limit gains. We expect choppy trade with a slight net gain over the next seven sessions, but confidence is low due to missing cargo-survey data and palm futures figures.
For buyers and traders, the key watchpoint is whether dry weather in Indonesia translates into actual output declines. With Brent crude near $89 per barrel, higher energy prices also support biodiesel economics, potentially diverting more palm oil into fuel use. The market remains sensitive to any news on production or policy shifts.