Palm Oil Prices: Navigating Short-Term Volatility Amid Geopolitical Risks and Export Optimism

Nathaniel StoneWednesday, Jun 25, 2025 2:11 am ET
2min read

The palm oil market in June 2025 is a study in contrasts: short-term volatility fueled by geopolitical tensions and currency fluctuations collides with long-term fundamentals rooted in robust demand and supply shifts. While Malaysian exports hit record highs and Indonesian policies tighten global supply, Middle East conflicts and crude oil dynamics add layers of uncertainty. For investors, the key lies in balancing these forces to capitalize on opportunities while mitigating risks.

Export Optimism: The Engine of Growth

Malaysian palm oil exports surged by 26.3% month-on-month in June, driven by India's halving of import duties to 10% and a weaker ringgit (near MYR 4.20/USD). India, the world's largest palm oil buyer, imported 592,888 metric tons (MT) in May—a six-month high—projected to rise to 750,000 MT by July. China and African markets also expanded demand, with Nigeria and Egypt boosting imports by 23.66% year-on-year.

This demand surge is structural, not cyclical. India's push to lower food prices and boost domestic processing, coupled with palm oil's $50/MT price discount over soybean oil, ensures sustained momentum. Analysts forecast global palm oil consumption to grow by 0.6% in 2025, supported by Indonesia's B40 biodiesel mandate, which diverts 2 million MT annually to domestic use.

Geopolitical Risks: The Wild Card

The Middle East's Iran-Israel conflict introduces volatility through three channels:
1. Energy Prices: Brent crude prices rose to $74/barrel in June, nearing levels where the POGO (Palm Oil-Gasoline) spread becomes positive. At $85/barrel, biodiesel blending economics improve, further incentivizing palm oil use for fuel.
2. Shipping Costs: Elevated insurance premiums for bulk carriers transiting the Red Sea and Persian Gulf add a hidden premium to palm oil's competitiveness.
3. Strategic Chokepoints: A closure of the Strait of Hormuz (20% of global oil flows) could spike crude prices to $100/barrel, indirectly boosting palm oil's value through biodiesel demand.

Technical Analysis: Where Are Prices Headed?

Palm oil futures (FGX25) traded at MYR4,100/MT in June, facing resistance at MYR4,113/MT. Technical analysts see upside potential to MYR4,200/MT by year-end, driven by:
- Short-term catalysts: Indian duty cuts and Q3 festival demand.
- Long-term tailwinds: Indonesia's B40 mandate and Malaysia's B10 policy, which could divert 3 million MT annually from global markets.

However, risks loom. Malaysian stocks hit 1.99 million MT in May—the highest in eight months—and could test 2 million MT, triggering a price collapse. Meanwhile, the U.S. imposed a 32% tariff on Indonesian palm oil, pressuring Jakarta to diversify markets.

Investment Strategies: Balancing Risk and Reward

  1. Short-Term Plays (0–6 months):
  2. Buy dips at MYR3,900/MT if the ringgit weakens further (below MYR4.20/USD).
  3. Hedge against geopolitical risks using crude oil futures (e.g., USO ETF) as a proxy for POGO dynamics.

  4. Monitor Indian imports: A drop below 600,000 MT/month signals weakness.

  5. Medium-Term Opportunities (6–12 months):

  6. Track production data: A Malaysian output decline below 1.6 million MT/month could tighten supply.

  7. Focus on sustainability plays: Companies like Wilmar International (F42.SI) and Sime Darby (5255.KL) are advancing MSPO 2.0 compliance to meet the EU's December 2025 deforestation ban.

  8. Long-Term Thesis (1–3 years):

  9. Biodiesel mandates: Indonesia's B40-B50 and Malaysia's B10 policies will permanently reduce global supply, supporting prices.
  10. EUDR compliance: Producers meeting EU's sustainability standards could command premium pricing.

Conclusion: Ride the Wave, But Stay Anchored

Palm oil's fundamentals—strong Asian demand, policy-driven supply constraints, and biodiesel tailwinds—paint a bullish long-term picture. Yet short-term risks, from oversupply to Middle East de-escalation, demand caution. Investors should:
- Leverage technical signals (e.g., resistance levels at MYR4,113/MT).
- Diversify exposure via ETFs like PACW (iShares MSCI Global Agriculture Producers ETF).
- Monitor geopolitical developments closely, as a Strait of Hormuz closure or Iranian retaliation could spark a crude price spike.

In a market where $85/barrel crude is the pivot, palm oil's next rally hinges on balancing export optimism with the Middle East's unpredictable crosscurrents.