The Interplay Between Edible Oils, Crude Prices, and Palm Oil Futures: A Strategic Opportunity in the Agri-commodity Sector

The global edible oil market has entered a period of dynamic reconfiguration, driven by a confluence of factors that are reshaping competitive dynamics and price relationships. For investors, this environment presents a compelling case for tactical long positions in palm oil futures, as weakening rival oils like soybean and sunflower oil, coupled with rising crude oil prices, create a favorable technical and fundamental setup.

Weakening Rivals and Structural Shifts

Soybean and sunflower oils, long-standing substitutes for palm oil, are facing headwinds that are eroding their cost competitiveness. Soybean oil prices on the Chicago Board of Trade (CBOT) have surged to $1,054 per metric ton, driven by tightening U.S. supplies and lingering trade tensions with China. Meanwhile, sunflower oil, once a dominant player in markets like India and the EU, has seen volatility due to supply constraints in Ukraine and Eastern Europe. By July 2025, sunflower oil prices in India had risen 38.75% year-to-date, making it a less attractive option for price-sensitive buyers.

Palm oil, in contrast, is benefiting from its unique position at the intersection of energy and agriculture. The recent 4% monthly decline in crude oil prices (Brent at $78.50/barrel) has temporarily weakened biodiesel economics, but this is offset by policy-driven demand. Indonesia's B40 biodiesel mandate and Malaysia's B10 mandate have redirected millions of metric tons of palm oil to domestic consumption, tightening global supplies. This structural shift, combined with a weakening Malaysian ringgit (MYR) and Indonesian rupiah, has enhanced the cost competitiveness of palm oil exports, particularly in India and China.

Crude Oil's Indirect Influence

The relationship between crude oil and palm oil is indirect but profound. Biodiesel margins, which hinge on the price differential between crude oil and feedstocks like palm oil, are a critical barometer. In July 2025, the POGO (Palm Oil–Gas Oil) spread widened to $164.8/mt, indicating that palm oil is undervalued relative to crude oil. This creates a tailwind for biodiesel producers, who can now lock in attractive margins as crude prices rebound from geopolitical tensions (e.g., OPEC+ supply cuts).

Investors should monitor this spread closely. A narrowing of the POGO gap—triggered by a crude oil rebound—would signal improved biodiesel economics and renewed institutional interest in palm oil futures. This dynamic is further amplified by India's import surge (424,599 mt in March 2025, a 13.7% increase from February) and China's record biofuel demand, both of which are underpinned by palm oil's cost advantage.

Technical Analysis: A Bullish Setup

From a technical perspective, palm oil futures on the Bursa Malaysia Derivatives Exchange (BMD) have shown signs of consolidation. The benchmark FCPO contract closed at MYR 4,063 in July 2025, having briefly tested the 200-day simple moving average (SMA) at MYR 4,119. While the price remains below the critical resistance level of MYR 4,150, the 20-day and 50-day SMAs (MYR 4,034 and MYR 3,939, respectively) suggest positive short-term momentum.

Key entry points for long positions are emerging in the MYR 4,000–4,050 range, with a stop-loss below MYR 3,950 to manage downside risk. A breakout above MYR 4,150 would confirm a bullish reversal, targeting MYR 4,300 as the next resistance. The 14-day RSI at 61.21% and stochastic oscillator nearing overbought territory (78.29% %K) indicate that the market is in a balanced phase, with no immediate signs of exhaustion.

Strategic Entry Points and Hedging

For investors seeking to capitalize on this setup, a multi-layered approach is advisable. Long positions in Dalian palm oil futures (MYR 4,000–4,050) can be paired with short positions in soybean or sunflower oil futures to hedge against cross-commodity volatility. Additionally, USD/MYR put options can mitigate currency risks, as a stronger ringgit could erode export margins.

Equity exposure to Malaysian producers like Sime Darby Plantation or IOI Corporation offers a dual benefit: production growth aligned with domestic biodiesel mandates and export gains from India and China's import demand. These companies are also positioned to benefit from sustainability-driven valuations, as global demand for certified sustainable palm oil (MSPO) grows.

Risks and Mitigation

While the case for palm oil is strong, risks persist. Elevated Malaysian inventories, weak Chinese demand, and competition from soybean and sunflower oils could pressure prices. To mitigate these, investors should diversify exposure across oils and monitor policy shifts in key producing nations. A narrowing POGO spread or a crude oil rebound would signal a shift in momentum, necessitating tactical adjustments.

Conclusion: A Confluence of Fundamentals and Technicals

The agri-commodity sector is at a crossroads, with palm oil emerging as a strategic asset in a market defined by energy transition and shifting trade dynamics. The weakening of rival oils, coupled with crude oil's indirect tailwinds and a favorable technical setup, creates a compelling case for long positions in palm oil futures. For investors, the key is to balance macro positioning with granular data on production, policy, and cross-market arbitrage opportunities.

Now is the time to act. The interplay between edible oils, crude prices, and palm oil futures is not just a temporary anomaly—it is a structural shift with long-term implications. By securing entry points in the MYR 4,000–4,050 range and hedging against currency and commodity volatility, investors can position themselves to capitalize on one of the most dynamic opportunities in the agri-commodity sector.