Malaysia’s palm oil production rose 9.4% month-on-month (MoM) to 1.79 million tonnes in July 2026, an increase of 154,000 tonnes, although output remained below last year’s level for the fifth consecutive month.
Exports strengthened further during the month, rising 14.5% MoM to 1.39 million tonnes, supported mainly by stronger buying from India ahead of the Diwali festive season and sustained demand from Sub-Saharan Africa.
Palm oil stocks, meanwhile, increased to 2.62 million tonnes in July.
However, the stock build-up is not viewed as a major concern as strong biodiesel demand and front-loading of exports in Indonesia have kept Indonesian palm oil inventories relatively low.
The palm oil market also rallied following the release of Malaysia’s supply and demand data on Aug 10, reinforcing the view that current inventory levels are not excessive despite overall supply remaining comfortable.
The global vegetable oil market continued to receive support from biofuel demand and geopolitical uncertainty in August, with palm oil recording the strongest gains.
Malaysian crude palm oil (CPO) prices rose 3.9% during the month, compared with gains of 2.7% for sunflower oil and 1.1% for soybean oil in Argentina.
Rapeseed oil prices in Europe, meanwhile, slipped 0.8%.
Malaysia’s palm oil production typically peaks in September or October before entering a seasonal decline in the fourth quarter.
Production growth during the first seven months of 2026 was largely supported by an improvement in the oil extraction rate (OER) from fresh fruit bunches (FFB).
OER from January to May was significantly above the 10-year average, helped by favourable rainfall conditions six months earlier.
However, OER fell below the 10-year average in June and July and is expected to remain below the historical average for the rest of the year.
With production entering its seasonal downtrend in 4Q26 and OER easing from the elevated levels seen earlier in the year, palm oil output is expected to decline year-on-year in the fourth quarter.
This could tighten supply towards the end of the year.
Ongoing geopolitical disruptions are also reshaping global vegetable oil trade flows.
Shipping through the Bab al-Mandeb Strait and Red Sea has been disrupted, while traffic through the Strait of Hormuz has declined following the expiry of the 60-day US-Iran ceasefire on Aug 17.
At the same time, operations at several major ports and crushing plants in the Black Sea region have been suspended amid renewed escalation of the Russia-Ukraine conflict.
The disruptions are creating uncertainty over sunflower oil availability over the next one to two months and could encourage major importers such as India to turn increasingly towards palm oil.
This trend was already evident in July, when India’s palm oil imports jumped 49.8% MoM, while soybean oil imports increased 31.0%.
Sunflower oil imports, however, rose only 3.6% amid tighter supply availability.
Biodiesel economics have also remained broadly favourable relative to vegetable oils since the escalation of the West Asia conflict in February, supporting blending demand and margins.
The trend has been particularly evident in Indonesia, where domestic crude palm oil prices remain significantly below gasoil prices.
Indonesia’s palm oil demand could strengthen further as its three-month transition period to clear remaining B40 biodiesel stocks comes to an end in September, potentially paving the way for stronger B50 biodiesel blending demand.
Looking ahead, CPO prices are expected to remain firm at above RM4,600 a tonne in September, supported by tightening supply fundamentals and continued geopolitical disruptions to global trade.
The strength in forward prices also reflects concerns over the potential impact of El Niño.
CPO futures contracts for 2027 traded on Bursa Malaysia Derivatives were above RM5,000 a tonne as of mid-August.
However, downside risks remain, particularly if Black Sea logistical bottlenecks ease, new-crop sunflower oil supplies enter the export market in greater volumes, or energy prices decline as geopolitical tensions improve.
Such developments could trigger a correction in global vegetable oil prices despite the currently supportive palm oil fundamentals.
