PETALING JAYA: Analysts have upgraded their sector stance for the plantation sector to “tactical positive” from “neutral”, supported by the emergence of renewed catalyst from the discount of palm oil-gas oil or the Pogo spread.
MBSB Research in a report said strengthening Brent crude would likely lift gasoil prices, narrowing the Pogo spread and improving biodiesel economics.
“This could make the B50 (50% palm oil 50% fossil diesel) funding requirement more manageable, potentially tightening palm oil availability through higher domestic absorption and lower ending stocks, which, in turn, could provide support to crude palm oil (CPO) prices,” it told clients in the report.
It said scenario-wise, this contrasts with the prior Russia-Ukraine conditions, where the impact on CPO was more immediate, given CPO served as a direct substitute for sunflower oil following disruptions to Ukraine’s sunflower harvest and export flows.
The war significantly curtailed shipments from the Black Sea region, tightening global supply of soft oils, it said, adding that Russia and Ukraine together accounted for roughly more than 50% of global sunflower and rapeseed oil production, which amplified the substitution effect and supported palm oil demand during that period.
The research house said with the recent US-Iran conflict escalation, any sustained rise in Brent crude could provide support to gasoil prices, given their strong correlation.
“We estimate gasoil prices to remain above US$95 per barrel this year, about 7.3% higher versus the 2025 average of US$88.50 per barrel.
“A firmer gasoil market would narrow the Pogo spread, potentially shifting gasoil to trade at a premium to palm oil,” it said.
MBSB Research is maintaining its 2026 CPO price target at RM4,200 per tonne, as spot delivery prices have yet to break its upper resistance band of RM4,500 per tonne.
A senior plantation analyst told StarBiz that Malaysia started this year with high palm oil stockpiles which usually pressures prices as buyers know supply is available.
“I expect 2026 CPO to average around RM4,000 per tonne with some volatility, but not the extreme highs of the past years,” he said.
In its report, Hong Leong Investment Bank’s (HLIB) research arm said intensifying Middle East tensions lifted CPO prices to RM4,199 per tonne, supporting near-term upstream earnings.
Downstream costs rise from higher palm oil feedstock and gas prices, and will likely partly be cushioned by oleochemical demand, it said.
It noted that prolonged tensions could elevate future fertiliser costs, and hence, CPO production costs.
HLIB Research is maintaining its 2026 CPO price assumption of RM4,200 per tonne, as well as its “overweight” stance on the sector.
While it remains unclear how long geopolitical tensions will persist – and thus the sustainability of the CPO price rally – the current surge in CPO prices should support near-term earnings for planters, HLIB Research said, particularly upstream players, given their high operating leverage to CPO prices.
“We take comfort that most companies under our coverage have already locked in their fertiliser requirements for the current financial year.”
