Palm oil rises in price following crude oil and biodiesel

Palm oil jumped above 4,000 ringgit (the main currency for palm oil trading), tracking a rise in soybean oil prices, which have surged on Washington’s proposal to allow refineries to produce and blend record amounts of biofuel into gasoline and diesel next year.

The long-awaited plan, unveiled by the Environmental Protection Agency on Friday, aims to boost U.S. biofuel production and curb imports. Analysts say the proposal is bolstering demand for edible oils and crude palm oil prices, as the biodiesel mandate will help support domestic U.S. consumption of edible oils and make room for rival palm oil, Bloomberg reports.

Soybean oil on the CBOT extended gains on Monday after jumping more than 6% on Friday, its biggest two-day gain in nearly three years and the highest in a year and a half. Kuala Lumpur palm oil futures rose 4.1%.

The rise in crude prices due to the conflict in the Middle East is also supporting prices. Global benchmark Brent extended gains on Monday after rising 7% on Friday. Investors are bracing for attacks on energy infrastructure and shipping in the region, which produces about a third of the world’s crude.

A potential escalation could also disrupt supplies in the Strait of Hormuz, pushing up energy prices and raising both the cost of producing palm oil and demand for biofuels, as well as raising the cost of fertilizer. Biofuels become more competitive when crude prices rise, which often shifts demand from oil-based fuels to palm and soybean oils, analysts said.

Tags: palm oil, prices