PETALING JAYA: Crude palm oil (CPO) prices appear to be tethered to oil price movements for the time being.
Oil has seen its importance in the workings of the global economy, underscored once again by the ongoing conflict at the Strait of Hormuz. It is more than just a fuel ingredient, it also plays a key role in various other supply chains like food, manufacturing etc.
As such, whether the recent strong rise in CPO prices is sustainable or not would boil down to how oil prices behave, at least in the short term – since it is also viewed as an alternative to oil.
CPO prices which last traded at RM4,489 per tonne are a shade lower than their six-month high recorded on March 16, whereby the commodity rose to RM4,654 per tonne. CPO prices are still much lower than what was recorded back in 2022 during the Russian-Ukraine war, where it rose in excess of RM7,100 per tonne, its historic high.
As such, prices today are largely seen as sustainable and would continue to move in tandem with oil prices – of which Brent crude oil had last traded at US$97.89 per barrel.
Brent crude oil now trades below the psychological US$100 per barrel at the time of writing as diplomatic efforts by the United States had raised hopes of easing the Middle East conflict, placating concerns over prolonged supply disruptions.
Tradeview Capital’s portfolio manager Neoh Jia Man said it is evident CPO prices have been supported by the recent spike in oil and gas prices following the Middle East conflict.
“Elevated crude prices improve the economics of biodiesel, thereby boosting demand for palm oil as an alternative fuel feedstock. At the same time, this has reinforced expectations of higher biodiesel blending mandates, particularly in Indonesia which further tightens export availability and provides additional support to CPO prices,” Neoh told StarBiz.
Whether CPO prices would continue to rise above RM4,500 per tonne will largely be contingent on the trajectory and duration of the ongoing geopolitical tensions and their impact on global energy prices, he said.
“In our view, underlying demand growth from traditional import markets remains relatively subdued, with early signs of demand destruction already emerging at elevated price levels. As such, the recent strength appears to be primarily energy-driven. Should global hydrocarbon prices moderate, we see a risk of price reversion, given the lack of strong fundamental support from food demand,” Neoh said.
The Malaysian Palm Oil Council (MPOC) said the recent vegetable oil price uptrend is supported by the Iran war coupled with the prolonged consolidation that was seen since mid-2025.
“Among the major vegetable oils, palm oil has been the price leader, rising 10% since the start of the conflict on Feb 27. In comparison, rapeseed oil rose 4%, sunflower oil increased 3%, while soybean oil gained only 1% in the global market,” the MPOC said in a statement late last week.
“The sharp rise in gas-oil prices in the global market has improved the competitiveness of biodiesel usage and blending.
“Brazil’s biodiesel industry has called for an increase in the blending mandate from B15 to B16, while Indonesia is accelerating road tests for B50 blending to reduce import reliance, although the implementation timeline remains unclear,” it added.
Looking ahead, the MPOC said CPO prices are expected to remain above RM4,450 per tonne in the near term, supported by elevated energy prices and a favourable palm oil-gasoil or POGO spread.
“However, weaker economic growth and heightened price volatility arising from uncertainties in the Middle East may temporarily delay imports from major markets, potentially capping the price rally,” it noted.
Meanwhile, Neoh said if the global energy market remains tight, he believes CPO can continue to stay competitive relative to other edible oils, especially soybean oil.
“Notably, the price premium of soybean oil over CPO has widened significantly to near a one-year high of approximately US$325 per tonne, driven by a sharper increase in soybean oil prices. Their price difference may see palm oil continue to retain an advantage and sustain its competitiveness within the global vegetable oil complex in the near term,” he added.
Although oil prices today have risen sharply and quickly, the oil price response is so far smaller than during the 2003 Iraq War and 1980 Iran-Iraq war, Goldman Sachs Global Investment Research noted in its recent report.
“We expect oil prices to continue trending higher in the short term, until the market gains more certainty about how long the disruption will last, especially in light of increasing strikes on energy infrastructure.
“This risk premium is required to generate enough precautionary demand destruction to hedge against the risk that commercial oil inventories might fall to critically low levels,” Goldman Sachs Global Investment Research said.
“Brent Crude Oil is likely to exceed its 2008 all-time high if depressed flows keep the market focused on the risk of lengthier disruptions. Any rise in market-perceived risks of US export restrictions would likely further widen the Brent-West Texas Intermediate price gap,” it added.
It estimates that the hit to total oil flows from the Persian Gulf stands at 17.6 million barrels per day or some 17% of global supply, making today’s shock the largest in history and 18 times larger than the peak April 2022 hit to Russian oil production.
