NEW : Malaysian crude palm oil (CPO) prices may fall nearly 7 percent to 2,575 ringgit per tonne in the last quarter of 2012 from current levels if Brent crude oil prices come down to $95 per barrel, a top analyst said on Saturday.
"I am bearish on crude oil prices. They should come down. Demand is slowing due to a slowdown in the global economy," James Fry, chairman of commodities consultancy LMC International, said at the Globoil India conference here.
"Eventually new supplies (deep sea, tar sands and shale oil) and weak demand growth, led by substitution by natural gas, will pull the market back to earth as oil stocks climb," he added.
Vegetable oil prices benefit from higher crude levels as their use as biofuels, which are seen as greener alternatives to petrol and diesel, becomes more economically attractive.
On Friday, benchmark palm oil futures on the Bursa Malaysia Derivatives Exchange lost 2 percent to close at 2,763 ringgit ($905) per tonne, after hitting an 11-month low of 2,755 ringgit earlier in the day. Brent crude closed at $111.42 per barrel.
He expects the CPO price in the fourth quarter (Oct-Dec) to be 2,285 ringgits if the crude price is $80 per barrel, more than 17 percent down from the current level, although he sees palm oil recovering to 2,450 ringgits in the first quarter of 2013.
"Crude oil is now the key to vegetable oil prices," Fry said in his presentation slides.
The premium of CPO over petroleum prices has fallen sharply since July due to rising inventories, Fry said.
"Mills must put oil into their tanks every day, regardless of the final demand. This makes them into permanent 'distress sellers' and helps explain why CPO always trades at a discount" (to other edible oils).
The London-based analyst forecast Indonesia's palm oil output in 2012 could rise by 8.1 percent to 27.25 million tonnes, while Malaysia may see a 3 percent drop in it production to 18.34 million tonnes.
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