Palm Oil Futures: Bullish Momentum Faces Technical Headwinds

The palm oil market has been a battleground of bullish and bearish forces in early June 2025, with prices hovering near key resistance levels amid mixed signals from technical and fundamental factors. While weekly trends suggest resilience, traders must remain vigilant: overbought conditions and critical technical barriers are setting the stage for a short-term correction, even as underlying fundamentals hint at long-term stability.

Technical Indicators: Resistance and Overbought Risks

The current technical landscape paints a cautionary picture for bulls. Key resistance levels—most notably the 4,000 MYR/t mark and the 20-day Exponential Moving Average (EMA) around 3,950 MYR/t—have repeatedly blocked sustained upward momentum. Recent attempts to breach these barriers (e.g., on May 14–15) ended in failure, with bearish candle patterns like the “big bear bar” and long upper wicks signaling exhaustion among buyers.

Overbought conditions have also emerged. Despite a rebound from the May 8 low (~3,600 MYR/t), the market's rally has been met with profit-taking. Technical analysts warn that without a decisive close above the 20-day EMA, the path of least resistance remains downward. Bearish patterns like the “double top bear flag” (formed at April's highs and mid-May's test) further suggest a potential breakdown toward 3,600–3,200 MYR/t.

Fundamental Drivers: A Delicate Balance

While technicals point to near-term risks, fundamentals offer a more nuanced outlook.

1. Supply-Side Stability: Malaysian production is expected to grow modestly in June, easing immediate supply pressures. Favorable weather and fading El Niño conditions support crop health, but output remains constrained by labor shortages and regulatory hurdles.

2. Demand Signals: Export data for May shows a +5%–+15% increase in the first half of the month, driven by improved demand from India and China. However, this recovery is tepid compared to pre-pandemic levels, and global oilseed markets—particularly soybean and sunflower oil—remain weak, limiting substitution-driven demand for palm oil.

3. Competing Oils and Crude: Weakness in soybean oil prices has reduced urgency for buyers to pivot to palm oil, while crude oil's muted rally offers only marginal support. This dynamic keeps palm oil's upside capped unless energy markets stabilize.

Investment Strategy: Profiting from Volatility

Traders must navigate this market with precision. Here's how to capitalize on the short-term correction while positioning for potential rebounds:

• Short-Term Plays:
• Take Profits Near Resistance: Close long positions as prices approach 4,000 MYR/t, where selling pressure is likely to resurface.
• Bearish Reversals: Look to enter short positions if the 20-day EMA (3,950 MYR/t) fails as support, targeting the May 8 low (~3,600 MYR/t).

• Stop-Loss Management: Set stops above key resistance (e.g., 4,050 MYR/t) to limit losses if bulls unexpectedly break through.

• Long-Term Outlook:

• Support Levels as Buying Opportunities: The 3,600–3,200 MYR/t range offers a strategic entry point for long positions, provided crude oil stabilizes and export data improves.
• Hedging for Exporters: Consider options or futures contracts to hedge Q3 shipments, given the market's volatility and macroeconomic uncertainties.

Conclusion: A Correction Is Coming—But Bulls Aren't Dead Yet

The palm oil market is at a crossroads. While technical saturation and bearish patterns suggest a near-term correction, fundamentals—modest demand recovery and supply stability—provide a floor. Traders should prioritize discipline: capitalize on overbought conditions to lock in gains, but remain ready to re-enter when prices test critical support.

The key takeaway? Bulls may roar again, but only after the current overhang clears.

Disclaimer: This analysis is for informational purposes only and should not be construed as financial advice. Always conduct your own research or consult a licensed professional before making investment decisions.