Palm Oil's Strategic Position Amid Dalian and Crude Oil Dynamics in a Geopolitical Climate

The global palm oil market in 2025 is a battleground of competing forces: surging biodiesel demand, volatile crude oil prices, and geopolitical trade tensions. For investors, understanding how these dynamics intersect is critical to unlocking opportunities in a sector poised for both disruption and resilience.

Biodiesel Demand: A Tailwind for Palm Oil

The global biodiesel market has expanded rapidly, driven by policy mandates and sustainability goals. From 2023 to 2025, the market grew at a 5.1% compound annual growth rate (CAGR), reaching $52.1 billion in value. Palm oil, with its high lipid content and cost efficiency, has become a dominant feedstock. Indonesia's B35 mandate (35% biodiesel blend) and Brazil's 14% blend requirement have directly increased palm oil consumption, with 20% of global oils and fats now used for energy.

The POGO (Palm Oil–Crude Oil) spread—a key indicator of biodiesel profitability—has widened dramatically. In 2024, the spread rose from $39.8 to $164.8 per metric ton, reflecting higher subsidies and feedstock costs. This trend suggests that palm oil's role in biofuels is here to stay, even as crude oil prices fluctuate.

Currency Fluctuations: A Double-Edged Sword

Currency dynamics play a pivotal role in palm oil's competitiveness. A weaker Malaysian ringgit (MYR) has made palm oil cheaper for international buyers, boosting exports to India, China, and Africa. In July 2025, the ringgit weakened by 0.14% against the U.S. dollar, enhancing Malaysia's export appeal. However, a stronger ringgit could erode margins, as seen in 2024 when the dollar's strength increased palm oil's cost for buyers in emerging markets.

Investors should monitor the MYR/USD exchange rate and its impact on Malaysia's export volumes. A weaker ringgit could act as a tailwind for palm oil producers, but it also raises inflationary pressures domestically, which may offset some gains.

Geopolitical Trade Tensions: Navigating Risks and Opportunities

The U.S.-China trade truce in 2025 temporarily reduced tariffs, creating a more stable environment for global trade. Malaysian palm oil exports surged by 51.8% in the first five months of 2025, capitalizing on the U.S. market's preference for sustainable feedstocks. However, a new 25% U.S. tariff on Malaysian goods, set to take effect on August 1, 2025, threatens to disrupt this momentum.

To mitigate risks, Malaysia has diversified its export strategy. New free trade agreements (FTAs) with the UAE and EFTA (Malaysia-EFTA Economic Partnership Agreement) have reduced reliance on the U.S. and China. By 2025, 12% of Malaysia's palm oil exports now flow to these regions, with downstream products like biodiesel and oleochemicals commanding higher margins.

The EU Deforestation Regulation (EUDR): Compliance as a Strategic Imperative

The EUDR, effective December 30, 2025, mandates that palm oil exported to the EU must be deforestation-free and legally compliant. Malaysia, classified as a “standard risk” country, faces 3% inspection rates for its exports, compared to 1% for low-risk nations. While this increases compliance costs, it also drives innovation in traceability systems like MPOB's SIMS and GeoSawit.

For investors, the EUDR represents both a challenge and an opportunity. Companies that invest in digital traceability and sustainability certifications (e.g., MSPO 2.0) will gain a competitive edge in EU markets. Conversely, firms unable to meet these standards risk losing access to lucrative European contracts.

Investment Thesis: Balancing Risks and Rewards

The palm oil sector in 2025 is a mosaic of risks and opportunities:
1. Biodiesel Demand: The POGO spread's widening indicates strong economics for biofuel producers. Companies like Sime Darby Plantation and Wilmar International, which are expanding into refining and blending, are well-positioned to capitalize.
2. Currency Tailwinds: A weaker ringgit enhances export competitiveness, particularly for dollar-denominated buyers. However, investors should hedge against potential inflationary pressures.
3. Geopolitical Diversification: Malaysia's FTAs and downstream value addition reduce exposure to U.S. tariffs. The UAE and EFTA markets now account for 12% of exports, offering a buffer.
4. EUDR Compliance: While compliance costs are high, they also drive long-term sustainability and market access. Investors should favor companies with robust digital traceability systems.

Conclusion: A Sector of Strategic Resilience

Palm oil's investment potential in 2025 hinges on its ability to navigate a complex web of energy, currency, and geopolitical dynamics. While short-term risks like U.S. tariffs and El Niño-driven yield reductions loom, the sector's long-term fundamentals remain robust. Investors who focus on companies with strong sustainability practices, downstream diversification, and digital traceability will be best positioned to thrive in this evolving landscape.

For those willing to look beyond the noise, palm oil offers a compelling case study in strategic resilience—a sector where policy, technology, and global trade converge to shape the future of renewable energy.