Palm Oil Volatility: Navigating Rival Oils and Geopolitical Storms in Malaysian Futures

Malaysian palm oil futures have entered a period of heightened volatility, driven by shifting dynamics in rival edible oils and escalating geopolitical tensions. As of July 2025, prices hover near a seven-month low of RM3,986 per tonne, within a range of RM3,900–RM4,200, as traders grapple with competing forces that could either stabilize or destabilize the market.

The Rival Oils Factor: Soybean Oil and Crude's Dual Influence

The price of palm oil is increasingly tied to the performance of soybean oil (soyoil) and crude oil, creating a volatile interplay of substitutes and complementary commodities.

1. Soybean Oil: A Direct Competitor
2. Divergent trends in Dalian soyoil and CBOT soyoil prices have created conflicting signals. A drop below RM5,000/tonne for Dalian soyoil pressures palm oil prices, while a rise in CBOT soyoil (due to U.S. biodiesel mandates or weather risks) can lift palm oil demand.

3. Example: In June 2025, Dalian soyoil fell 0.75%, dragging palm oil prices lower, while CBOT soyoil's 0.59% gain provided modest support. This split highlights the precarious balance between regional demand and supply dynamics.

4. Crude Oil: The Biodiesel Link

5. Palm oil's use in biodiesel makes it indirectly tied to crude oil prices. A decline in crude below $60/barrel reduces the economic viability of biodiesel, weakening palm oil's demand. Conversely, a rebound above $75/barrel could revive biodiesel production, pushing palm oil toward RM4,200–RM4,500.
6. OPEC+'s July production hike (548,000 barrels/day) has already sent crude prices down, but Middle East tensions (e.g., Israel-Iran conflicts) remain a wildcard.

Geopolitical Tensions: From Middle East Conflicts to Indonesian Policies

Geopolitical risks amplify volatility by disrupting supply chains and altering trade policies.

1. Middle East Tensions

2. Regional conflicts could disrupt crude oil supply, indirectly boosting palm oil prices via biodiesel demand. For instance, a $70/barrel crude price (a 20% rise from June lows) would signal a shift toward palm oil-based biodiesel, creating upward momentum.

3. Indonesian Export Policies

4. Indonesia's B40 biodiesel mandate diverts 2 million tons of crude palm oil (CPO) annually to domestic use, tightening global supply. However, Jakarta's sporadic export taxes and subsidies create sudden supply shocks. Traders must monitor Indonesian policy announcements closely.

5. EU Sustainability Rules

6. The EU's 2026 deadline for 95% MSPO-certified palm oil imports looms large. Malaysia's current MSPO certification rate of 86.5% risks exclusion from the €10 billion EU market, a blow to demand that could push prices toward RM3,565/ton by year-end.

Investment Strategies: Riding Volatility with Discipline

Traders must balance short-term technical signals with long-term structural risks.

1. Bullish Scenario
2. Trigger: Crude oil > $75/barrel or CBOT soyoil > RM5,200/ton.
3. Play: Buy palm oil futures near RM3,950, targeting RM4,100–RM4,200.

4. Hedge: Use put options to mitigate downside risk, given Bursa Malaysia's 15% daily price limits.

5. Bearish Scenario

6. Trigger: Dalian soyoil < RM5,000/ton or USD/MYR < 4.50.
7. Play: Short at RM4,100, aiming for RM3,900.

8. Monitor: Export data (e.g., July shipments rose 31% in the first five days) and weather patterns (El Niño's fading impact vs. La Niña's potential arrival).

9. Technical Watchpoints

10. Critical Support: The RM4,008–4,032 zone. A breach below RM4,008 risks a drop to the 18-month low of RM3,849.
11. Resistance: RM4,113–RM4,260. Sustained movement above RM4,113 signals upward momentum.

Conclusion: A Volatile Dance with Long-Term Risks

Malaysian palm oil futures remain in a tug-of-war between oversupply pressures and bullish catalysts like geopolitical crude spikes or EU compliance. While short-term traders focus on rival oil prices and technical levels, investors must prepare for structural risks: aging plantations (30% of Malaysian estates are >25 years old), sustainability mandates, and climate volatility.

For now, stay nimble. Use options to hedge, watch crude oil prices, and track Indonesian policy shifts. The market's near-term range (RM3,900–RM4,200) offers opportunities, but the path to RM3,565/ton by end-2025 is paved with risks that could either amplify or alleviate volatility.

Final advice: Let the storm rage, but anchor your trades to fundamentals.