Palm oil strengthened in Malaysia on Friday snapping three weeks of declines, buoyed by firmer crude oil prices, buyers stocking up ahead of the Muslim fasting month and a week of extreme heat that suggested an El Nino weather pattern may be on the way. By Friday's close, the benchmark August contract on the Bursa Malaysia Derivatives Exchange had climbed 1.08 percent to 2,427 ringgit ($750) per tonne, the benchmark's biggest single-day percentage gain since February 26.
The contract rebounded from near eight-month lows, rising 0.53 percent this week after three straight weeks of declines. Total traded volume stood at 42,111 lots of 25 tonnes, above the average 35,000 lots. "You must bear in mind crude oil is bidding on the high side," said a trader with foreign commodities brokerage in Kuala Lumpur. Higher crude prices make palm a more attractive feedstock to produce biodiesel.
Palm oil prices also benefited from an expected increase in demand during the fasting month, at a time when plantation workers will take holidays, potentially delaying harvests and disrupting supply in July. Traders also said that after the past five days of extreme heat in peninsular Malaysia there was a feeling that this could be the onset of El Nino, further disrupting output.
"It's scorching," said another trader at a local commodities brokerage in Malaysia. Technicals showed palm oil is expected to test a resistance at 2,437 ringgit per tonne, a break above which will lead to a further gain to 2,487 ringgit, said Reuters market analyst Wang Tao. In other competing vegetable oil markets, the US soyoil contract for July edged up 0.93 percent, in late Asian trading, while the most active September soybean oil contract on the Dalian Commodities Exchange rose 0.5 percent.