Palm Oil Futures: Navigating Rival Oil Price Dynamics and Geopolitical Tailwinds for Strategic Entry

The palm oil futures market in 2025 is a masterclass in interconnected market dynamics, where technical indicators, currency fluctuations, and geopolitical risks converge to create both volatility and opportunity. For investors seeking to capitalize on this complexity, understanding the interplay between rival oils (soybean and crude) and macroeconomic forces is critical. Below, we dissect the key drivers shaping palm oil's trajectory and outline actionable strategies for strategic entry.

1. Rival Oil Price Dynamics: A Tale of Two Markets

Palm oil's price movements are increasingly tethered to soybean oil and crude oil, but the relationships are asymmetric and evolving.

• Soybean Oil: Substitution and Regional Divergence
  Soybean oil and palm oil compete in industrial and food applications, creating a substitution effect. Recent data shows that when palm oil prices rise, soybean oil gains relative appeal, particularly in China's sluggish domestic market. However, U.S. soybean oil prices have surged due to robust biofuel demand and export strength, creating a divergence that stabilizes palm oil futures. For example, a 0.75% drop in Dalian soyoil on June 26 contrasted with a 0.59% gain in CBOT soyoil, reflecting divergent regional fundamentals.

• Crude Oil: The Biodiesel Link
  Crude oil's influence on palm oil is now more pronounced post-COVID, driven by biodiesel demand. A 4% drop in crude prices in June 2025 dragged palm oil futures down 2.04%, while a rebound above $75/barrel could reignite bullish momentum. This correlation is structural: higher crude prices make palm oil-based biodiesel more economically viable, directly boosting demand.

2. Geopolitical Tailwinds: Hidden Premiums and Policy Risks

Geopolitical tensions and regulatory shifts are indirectly shaping palm oil's cost structure and competitiveness.

• Iran-Israel Conflict and Shipping Costs
  Elevated insurance and freight premiums due to the Middle East crisis are indirectly supporting palm oil prices. While palm oil doesn't transit high-risk Red Sea routes, its competitors—like soybean oil—face higher costs, narrowing the price gap. This hidden premium could persist if geopolitical tensions escalate, creating a tailwind for palm oil.

• EU Deforestation Regulation (EUDR) Compliance
  Malaysia's palm oil industry faces a $500 million annual risk if it fails to achieve full EUDR compliance. Producers are accelerating sustainability efforts, but this adds short-term costs. Investors should monitor MSPO 2.0 certification progress, as non-compliant producers may see reduced access to EU markets.

3. Currency Dynamics: The USD/MYR Imbalance

The Malaysian ringgit's strength against the U.S. dollar (currently 4.24–4.26) is a double-edged sword.

• Competitiveness vs. Profit Margins
  A stronger ringgit makes Malaysian palm oil more expensive for foreign buyers, reducing its edge over soybean oil (priced in USD). However, a weaker ringgit (e.g., below 4.25) could boost export competitiveness, albeit at the cost of squeezing farmer margins.

• Technical and Fundamental Catalysts
  The USD/MYR pair is trading in a 4.23–4.27 range, with key support at 4.23 and resistance at 4.25–4.27. Traders should watch the 50-day and 200-day moving averages, as well as RSI and MACD indicators, for breakout signals. Central bank policy (Federal Reserve vs. Bank Negara Malaysia) and Malaysia's GDP/inflation data will also shape this dynamic.

4. Strategic Entry Points: Balancing Technical and Fundamental Factors

Given these interdependencies, investors must adopt a multi-layered approach:

• Short-Term Plays
• Sell near RM4,000–4,032 if crude oil remains below $60/barrel and the ringgit strengthens, as this would amplify downward pressure on palm oil.

• Buy dips toward RM3,849 if geopolitical tensions push crude above $70/barrel, leveraging the biodiesel-driven rebound.

• Long-Term Plays

• Invest in palm oil producers accelerating EUDR/MSPO 2.0 compliance, as sustainability-linked demand is structurally bullish.
• Monitor Indonesia's B40-B50 mandate, which locks in 2 million metric tons of annual domestic consumption.

5. Risk Mitigation and Diversification

While palm oil offers compelling opportunities, its volatility demands diversification. Pair palm oil futures with crude oil and soybean oil contracts to hedge against substitution risks. Additionally, use options strategies to lock in price levels amid currency swings.

Conclusion: A Market of Interconnected Forces

Palm oil futures in 2025 are a microcosm of global market interdependencies. By dissecting rival oil dynamics, geopolitical tailwinds, and currency-driven imbalances, investors can identify high-conviction entry points. The key lies in balancing technical precision (e.g., tracking the 200-day moving average at RM4,050) with macroeconomic foresight, ensuring that volatility becomes a tool rather than a threat.

For those prepared to navigate this complexity, palm oil remains a strategic asset in a world where energy, food, and currency trends collide.