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Asia Biofuels Update: Strong Energy Market Continues to Lift Palm Oil

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Malaysian palm oil futures rose for a fourth consecutive session on Thursday, as the impact of higher soybean oil and crude oil offset the downside from high inventories and uncertainties around near-term demand.

The Bursa Malaysia Derivatives' September crude palm oil contract climbed 1.63% to 4,730 Malaysian ringgit ($1,161.88) per metric ton. The October contract inched up 1.44% to 4,863 ringgit/mt, reaching a new contract high.

Prices continued to rally amid improving biofuel economics and widening discount of palm oil to gas oil.

Market sentiment remained largely positive despite higher inventories in Malaysia, which have risen 3.3% month over month to 2.6 million metric tons in July, the highest in five months, according to Malaysian Palm Oil Board data.

Nonetheless, the Malaysian Palm Oil Council said that the current stock levels are "not excessive" and "not a major concern," considering higher biodiesel demand and front-loading of cargoes in Indonesia.

In southern Malaysia, palm oil production during the Aug. 1-15 period fell by 3.4% from a month earlier, according to data cited by market intelligence provider SunSirs.

This "reflects a temporary tightening of supply, providing bullish support for palm oil prices," SunSirs said.

Meanwhile, diverging export trends weighed on prices, after AmSpec Agri Malaysia reportedly estimated a 3.2% month-over-month increase in Malaysian shipments, while Intertek Testing Services assessed a 7.9% drop.

A strengthening local currency could make exports more expensive for foreign buyers, dampening export competitiveness. Malaysian ringgit firmed against the US dollar by another 0.45% on Wednesday, extending a two-session rally.

Near-term demand could be supported as buyers turn to other edible oils following disruptions in sunflower oil cargo arrivals from the Black Sea.

Geopolitical tensions, particularly in the Middle East, could continue supporting prices, with the MPOC projecting palm oil to trade above 4,600 ringgit/mt next month.

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