There was some profit-taking in external commodity markets after China Securities Journal cited central bank vice governor Yi Gang as saying that China would keep mopping up excess cash in the economy by raising cash reserve requirements for banks.
However, he also said inflation will moderate in the second half of the year as measures taken so far to dampen inflation hit their mark.
The benchmark July contract on the Bursa Malaysia Derivatives Exchange dropped as much as 1.3 percent to 3,228 ringgit ($1,085) per tonne -- a level unseen since April 19, before ending at 3,265 ringgit.
Overall traded volume stood at 24,367 lots at 25 tonnes each, a tad lower than 25,000 lots usually traded.
"The market has been dragged lower by improving output, mainly in Malaysia but also in Indonesia," said Standard Chartered analyst Abah Ofon in a note to clients.
"We expect these bearish events to dominate in Q2-2011, but our overall outlook remains bullish in anticipation of resurgent demand from China and India, and given firm energy markets," he added.
Malaysian palm oil exports have recovered last month, limiting losses in the futures markets and helping to slow a stock build up.
"Ten days ago, I would have put Malaysian palm oil stocks for April at 2 million tonnes but exports have changed the scenario a little," said a trader with a plantation house.
Reuters will issue a poll on Malaysia's April palm oil stocks, production and exports on Thursday, ahead of official industry data release on May 10.
Reuters analysis showed palm oil continues to be technically neutral as it is rangebound between 3,234 ringgit to 3,328 ringgit per tonne.
Brent crude futures turned positive on Wednesday as the dollar index slipped in a volatile trading session, while the focus remained on the latest weekly reading of United States oil stocks due out later in the day.
Higher crude supported vegetable oil markets.
Chicago soyoil for May delivery edged higher but traders still focused on waning demand for US soybeans from the world's No.1 buyer China as bumper crops are harvested.
China's most-active January 2012 Dalian soyoil contract edged lower.