Following the May Day holiday, the domestic oils and fats futures market experienced a sharp swing, initially rising before falling. The market, which had been supported by positive external factors, suddenly reversed course, leaving many traders puzzled: Why did the oils and fats sector exhibit this high-open, low-close pattern? With both bullish and bearish factors currently intertwined in the market, what direction will prices take in the future?
An analyst from Huishang Futures noted that the core reason for the post-holiday high-open, low-close pattern was the sharp volatility in the international crude oil market. During the holiday, overseas crude oil and U.S. soybean oil prices strengthened, coupled with a boost from the implementation of Malaysia's B15 biodiesel policy. When the domestic futures market reopened, oils and fats duly followed with a catch-up rally. However, on May 6, international crude oil prices plunged by 7% in a single day, directly dampening sentiment across the entire oils and fats sector and causing the market to turn downward.
An analyst from Zhengxin Futures added that the fluctuating situation in the Middle East has led to significant oil price volatility. Even if the Strait of Hormuz resumes navigation, the recovery of crude oil production capacity and transportation will take time. In the short term, crude oil valuations are expected to remain high, driving synchronous fluctuations in oils and fats prices.
"Geopolitical tensions in the Middle East have triggered sharp fluctuations in crude oil, disrupting the original adjustment rhythm of oils and fats. This is a key external variable affecting the oils and fats market recently," said an analyst from Zhonghui Futures.
Setting aside short-term crude oil price disturbances, the global oils and fats market is caught in a tug-of-war between a 'weak reality and strong expectations,' according to the Huishang analyst. Palm oil faces the real pressure of seasonal production increases and inventory accumulation, while biodiesel policies and El Niño-induced production reduction expectations create opposing forces pulling in different directions.
The Zhengxin analyst concurred with this view. She analyzed that Malaysian palm oil has entered its production increase season, with destocking slowing in April. Indonesia's carryover inventory is relatively low, and its 2026 palm oil production might drop by 2 million tons due to weather and fertilizer costs, creating a mixed picture in the Indonesian and Malaysian industry. In North America, the planting progress for the new U.S. soybean crop is faster than usual, but dry weather raises concerns about yield. Combined with strong crushing demand, these factors support higher prices for U.S. soybeans and soybean oil.
The Zhonghui analyst stated that global oils and fats generally present a pattern of positive expectations but inventory accumulation in reality. Elevated crude oil prices increase planting and transportation costs, while various countries' biodiesel policies are being implemented at an accelerated pace. Coupled with the uncertainty of El Niño, these factors collectively limit the overall downside space for oils and fats. Among them, palm oil sees the strongest push in biodiesel policies, with Indonesia and Malaysia upgrading their blending standards to B50 and B15, respectively, significantly boosting long-term consumption expectations and providing sustained support for oils and fats. From a fundamental perspective, Malaysian palm oil production in April is estimated to have increased by 18% month-on-month, while exports fell by 13%, leaving inventories at historically high levels for the same period. As production continues to rise in May, inventory accumulation pressure will further intensify, making the spot fundamentals for Southeast Asian palm oil generally weak.
Regarding the domestic oils and fats market, the Huishang analyst indicated that domestic soybean oil and rapeseed oil lack independent upward momentum. With concentrated arrivals of Canadian rapeseed and Brazilian soybeans in May, coupled with rising operational rates at oil mills, the supply of soybean oil and rapeseed oil is gradually loosening, putting overall pressure on prices. Only the rising import cost of Brazilian soybeans for distant months provides some underlying support for soybean oil prices.
The Zhonghui analyst added that domestic soybean oil will enter an inventory accumulation cycle in May, with weak short-term fundamentals and basis. Although rapeseed oil inventories are currently at a three-year low for the same period, a significant increase in rapeseed imports in May, combined with the domestic new crop coming to market, creates short-term supply pressure that restrains upward price momentum, making a weak and volatile trend highly likely.
Looking ahead, the Huishang analyst believes the short-term trend of palm oil inventory accumulation is difficult to reverse. With domestic soybean and rapeseed oil supply gradually loosening, the overall oils and fats sector faces pressure. However, biodiesel policies and long-term weather factors will continue to provide underlying support, making a sharp price decline unlikely. Prices are expected to maintain high volatility. Market participants should monitor Malaysian palm oil data and crude oil price movements.
In the view of the Zhengxin analyst, the Middle East situation remains the core variable disturbing crude oil, indirectly influencing oils and fats. The continuous global implementation of biodiesel policies forms long-term demand support. Combined with the weak spot fundamentals of Southeast Asian palm oil during its production increase cycle, oils and fats are expected to maintain high volatility in the short term. Later, focus should be on weather in U.S. soybean producing regions and supply-demand changes for Indonesian and Malaysian palm oil.
The Zhonghui analyst cautioned that oils and fats will continue to see a battle between reality and expectations in the short term. All three major oils face phased supply increases and have adjustment needs. Crude oil price movements will determine the pace of the oils and fats market. The long-term bullish logic for palm oil remains unchanged. Soybean and rapeseed oil may experience weak volatility in the short term with limited downside space. Attention should be paid to origin supply and demand, palm oil import arrivals, and crude oil dynamics.
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