Palm oil set for 7% weekly loss on slowing demand; Middle East tensions underpin

Malaysian palm oil futures surrendered early gains on Friday, setting them on course for a second consecutive weekly decline, as traders weighed concerns over escalating tensions in the Middle East and slowing palm oil demand.

The benchmark palm oil contract FCPOc3 for July delivery on the Bursa Malaysia Derivatives Exchange was unchanged by the midday break. It had risen as much as 1.4% during early trade.

For the week, the contract is poised for a near 7% weekly decline.

The market is monitoring reports about Israeli missiles attacking a site in Iran, in the latest tit-for-tat exchange between the two arch foes, whose decades of shadow war has broken out into the open, threatening to drag the region deeper into conflict.

“Speculators would rather cover their short positions now because of fears that the escalating tensions in the Middle East will mean a prolonged war, which will push up crude oil prices and underpin palm oil prices,” Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari.

But weakness in prices of competing vegetable oil is eating into palm oil’s demand and will cap gains, he said.

Oil prices jumped $3 a barrel on Friday in reaction to growing tensions between the two countries, sparking concerns that Middle East oil supply could be disrupted. O/R

Stronger crude oil futures make palm a more attractive option for biodiesel feedstock.

In related oils, Dalian’s most-active soyoil contract DBYcv1 fell 0.2%, while its palm oil contract DCPcv1 was down 0.27%. Soyoil prices on the Chicago Board of Trade BOcv1 climbed 0.3%.

Palm oil is affected by price movements in related oils as they compete for a share in the global vegetable oils market.

Palm oil may break support at 3,969 ringgit per metric ton, and fall further to the 3,899-3,942 ringgit range.

Tags: Malaysia, soyoil, palm oil, futures, benchmark contract