Palm Oil's Volatile Dance: Crude Oil, Trade Tensions, and the Path to Profit in 2025

The Malaysian palm oil market has emerged as a geopolitical and economic battleground in 2025, its futures prices swinging wildly in response to global crude oil trends, trade policies, and currency fluctuations. As of June 2025, palm oil futures hover near MYR 4,000/ton—a critical technical level—amid a complex interplay of factors that investors must decode to capitalize on opportunities. This article dissects the inverse relationship between palm oil and crude oil, the competitive dynamics of edible oils, and the strategic implications of currency movements for positioning in this high-volatility market.

The Inverse Relationship: Crude Oil's Shadow Over Palm Oil

The price of palm oil has historically moved in tandem with biodiesel demand, which is inversely tied to crude oil prices. When crude prices rise, biodiesel blending becomes economically viable, narrowing the POGO spread (Palm Oil vs. Gasoil) and boosting palm oil demand. Conversely, falling crude prices widen this spread, making biodiesel less profitable and reducing palm oil's appeal.

The inverse relationship is stark in Q2 2025:
- Brent crude at $75/barrel (as of June) has widened the POGO spread to $165/ton, pressuring palm oil prices below MYR 4,000/ton.
- A 10% rise in crude prices to $85/barrel could narrow the POGO to $120/ton, lifting palm oil toward MYR 4,200/ton by year-end.

The Edible Oil Arms Race: Palm Oil vs. Soybean and Beyond

Palm oil's valuation is also influenced by its competition with soybean oil (soyoil), sunflower oil, and rapeseed oil. In Q2 2025, palm oil regained a $50/ton discount over soyoil—its largest gap in 18 months—driven by India's import duty cuts and the weak ringgit. This pricing edge has fueled a 10% surge in Indian palm oil imports.

However, soyoil prices remain volatile due to:
- US soybean inventory constraints (projected to drop to 200 million bushels by July).
- Geopolitical risks: Russia's tight grip on Black Sea grain exports and US-China trade frictions.

Investors must monitor this spread. A narrowing gap below $30/ton could trigger a rotation into soyoil, weakening palm oil demand and prices.

Trade Tensions and Currency Wars: Fueling Volatility

Malaysia's palm oil sector faces dual pressures:
1. Trade Policy Uncertainty:
- Indonesia's B40 biodiesel mandate (40% palm oil blend) has diverted 2 million tons of palm oil to domestic use, reducing global supply.
- India's May duty cuts—reducing import tariffs to 10%—are a double-edged sword: while boosting demand, they risk over-reliance on cheap imports if global prices stabilize.

1. Currency Fluctuations:
2. The weaker ringgit (down 0.68% against the USD in June) makes Malaysian palm oil cheaper for international buyers, supporting exports.
3. A further depreciation could push palm oil below MYR 3,500/ton—a level last seen in late 2023—due to oversupply concerns.

Technical Levels: The Pivot Points for Palm Oil

Traders are fixated on two critical levels:
- Resistance at MYR 4,000/ton: A sustained breach would signal a shift to a bullish trend, potentially targeting MYR 4,200/ton.
- Support at MYR 3,889/ton: A breakdown here could trigger a collapse to MYR 3,500/ton, especially if crude prices slump below $78/barrel.

Investment Strategy: Navigating the Chaos

1. Go Long Palm Oil if:
2. Crude oil rallies above $80/barrel, narrowing the POGO spread.
3. The ringgit weakens further, boosting export competitiveness.

4. India's imports exceed 550,000 tons/month, signaling sustained demand.

5. Short Palm Oil if:

6. Crude prices dip below $75/barrel, widening the POGO spread.
7. Dalian soyoil prices surge above $1,000/ton, compressing the palm-soy gap.

8. Malaysia's palm oil inventories rise above 2.2 million tons, signaling oversupply.

9. Hedge with Currency Positions:
   Pair palm oil longs with a long MYR/USD position to capitalize on further ringgit depreciation.

Conclusion: A Market of Contradictions

Malaysian palm oil futures in 2025 are a masterclass in volatility, shaped by crude oil's whims, edible oil rivalries, and geopolitical trade battles. Investors must remain agile: monitor the POGO spread, watch for currency shifts, and respect technical resistance/support levels. While the path forward is fraught with risks—from inventory gluts to policy reversals—the rewards for those who navigate this maze could be substantial. As always, the key is to trade the trends, not the headlines.

Stay informed, stay disciplined, and let the market's rhythm guide your decisions.