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MUMBAI: Malaysian palm oil futures edged higher on Monday on hopes that biodiesel demand would increase following a rally in crude oil prices, but rising stocks capped the upside.

The benchmark palm oil contract for December delivery on the Bursa Malaysia Derivatives Exchange rose 8 ringgit or 0.22% to close at 3,608 ringgit ($762.95) per metric ton, after losing 4.4% last week.

The contract rose as much as 2.4% in early trade but erased most of the gains in anticipation of higher stocks in Malaysia, the world’s second-biggest palm oil producer.

Oil prices surged more than 3% on Monday as military clashes between Israel and the Palestinian Islamist group Hamas ignited fears of a wider conflict in the Middle East.

“Due to the rally in crude oil prices, the market is expecting a scenario of increased palm oil demand for biofuel production,” said Anilkumar Bagani, research head at Sunvin Group, a Mumbai-based vegetable oil brokerage.

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

Soyoil futures on the Chicago Board of Trade were up 1.37% in Asian hours.

The upside in palm oil futures was capped by weakness in Chinese vegetable oil futures, which were adjusting to the downside in the vegetable oil market during Chinese holidays last week, Bagani said.

Gains in palm oil were also restricted by slowing import demand from top buyer India and the likely rise in Malaysian palm oil stocks, said a New-Delhi-based edible oil trader.

Malaysia’s palm oil stocks at September-end likely rose to the highest since October 2022 despite increased exports amid higher output, a Reuters survey showed.

India’s September palm oil imports dropped 26% from a month ago after inventories jumped to record levels.

Palm oil looks neutral in a range of 3,595-3,624 ringgit per metric ton, and an escape could suggest a direction..

Analysts polled by Reuters expect the U.S. Department of Agriculture to slightly downgrade its estimates for the U.S. corn and soy harvests in its report due on Oct. 12.

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