Commodities
Palm oil buyers switch to cheaper rival oils, hampering price recovery
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![Palm oil buyers switch to cheaper rival oils, hampering price recovery](https://i-invdn-com.investing.com/trkd-images/LYNXMPEK170ZK_L.jpg)
© Reuters. Trucks are seen near a palm oil plantation at a village located near Indonesia’s projected new capital, known as Nusantara National Capital, in Sepaku, East Kalimantan province, Indonesia, March 8 2023. REUTERS/Willy Kurniawan/File Photo
By Rajendra Jadhav
MUMBAI (Reuters) – The rebound in palm oil prices is likely to be capped by abundant supplies of rival soyoil and sunflower oil, “soft” oils that are available at discounts to tropical palm oil for the first time in more than a year.
Benchmark Malaysian palm oil futures have risen nearly 5% in 2024 after losing 11% last year.
Primary competitor soyoil typically trades at a premium to palm oil, but a record South American soybean crop has driven down prices, and buyers are taking more soyoil shipments.
Soft oils production is rising while palm oil production is falling, driving divergent price trends, said Vipin Gupta, chief executive officer of Dubai-based trader Glentech Group.
“Higher prices are pushing away buyers from palm oil, which will limit the price rise,” Gupta said.
Crude palm oil (CPO) imports are being offered at about $930 a metric ton, including cost, insurance and freight (CIF), in India for March delivery, while soyoil and sunflower oil are offered around $915 and $910 a ton, respectively, dealers said.
Palm oil, available at a discount of nearly $200 a ton to soyoil in November, is trading at premiums as dryness caused by an El Nino weather is limiting output in the two largest producers, Indonesia and Malaysia.
In India, the top vegetable oil importer, buyers are trimming palm oil imports and increasing soyoil for shipments in coming months, said Sanjeev Asthana, CEO at Patanjali Foods Ltd, India’s top palm oil buyer.
Palm oil imports by India fell to their lowest in three months at 787,000 ton in January as soyoil purchases rose 24% to 190,000 tons.
India’s soyoil imports could jump to 300,000 tons in March and further to 400,000 tons in April, while palm oil imports could fall to around 700,000 tons, said Sandeep Bajoria, CEO of Sunvin Group, a vegetable oil brokerage.
Negative refining margins for palm oil for Indian refiners contrasts with the positive margin in soyoil and sunoil, prompting increases soft oil purchases, said Rajesh Patel, managing partner at edible oil trader and broker GGN Research.
India buys palm oil mainly from Indonesia, Malaysia and Thailand, while it imports soyoil and sunflower oil from Argentina, Brazil, Russia and Ukraine.
Due to higher freight costs, palm oil is even more expensive for European buyers and is trading in Europe at a premium of up to $100 a ton over soyoil, canola oil and sunflower oil, said a Singapore-based dealer with a global trading house.
CORE DEMAND INTACT
While high prices are likely to squeeze household consumption, industrial demand for palm oil is likely to remain intact, the Singapore dealer said.
In Pakistan, palm oil is primarily used to make vanaspati ghee, a cheaper substitute for clarified butter, for which demand will persist, said Rasheed JanMohd, chief executive of Karachi-based Westbury Group.
Palm oil is expected to maintain its premium for at least a few months, as production in Indonesia and Malaysia declines and demand for biodiesel in Indonesia rises, said a Kuala Lumpur-based vegetable oil trader.
“Palm oil stocks are decreasing in producing countries, which will give them leverage to quote higher prices,” the trader said.
Malaysia’s palm oil stocks likely fell for the third straight month in January, a Reuters survey showed.
Commodities
Oil prices settle lower after weak August jobs report adds to demand concerns
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Investing.com — Oil prices settled lower Friday, ending the week with a loss as weaker U.S. nonfarm payrolls stoked concerns about an economic-led slowdown in crude demand.
At 2:30 p.m. ET (1430 GMT), the futures (WTI) traded fell 2.1% to settle at $67.67 a barrel, while contract fell 2.2% to $71.06 per barrel.
U.S. economic slowdown worries resurface after weak jobs report
The US economy added fewer jobs than anticipated in August, but rose from a sharply revised July figure, according to Labor Department data that could factor into the Federal Reserve’s next policy decisions.
Nonfarm payrolls came in at 142,000 last month, up from a downwardly-revised mark of 89,000 in July. Economists had called for a reading of 164,000, up from the initial July mark of 114,000.
Following the release, bets that the Fed will introduce a deeper 50 basis-point rate cut — rather than a shallower 25 basis-point reduction — increased.
Concerns about the demand come just a day after OPEC+ said it had agreed to postpone a planned increase in oil production for October and November.
U.S., Europe working on Iran sanctions
Geopolitical tensions ratcheted up on Friday after the U.S. and Europe they were working on sanctions to impose on Iran after the Tehran sent missiles to Russia.
The U.S. had previously warned Iran about transferring missiles to Russia, saying it would represent a major escalation in Iran’s support of Russia’s war against Ukraine.
Commodities
Goldman Sachs expects OPEC+ production increases to start in December
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(Reuters) – Goldman Sachs adjusted its expectations for OPEC+ oil production saying it now expects three months of production increases starting from December instead of October, the bank said in a note on Friday.
OPEC+ has agreed to delay a planned oil output increase for October and November, the producers group said on Thursday after crude prices hit their lowest in nine months, adding it could further pause or reverse the hikes if needed.
However Goldman Sachs maintained its range of $70-85 per barrel and a December 2025 Brent forecast at $74 per barrel.
The investment bank expects the effects of a modest reduction in OPEC+ supply in the upcoming months to be counterbalanced by easing effects from the current softness in China’s demand and faster-than-expected recovery of Libya’s supply.
“We still see the risks to our $70-85 range as skewed to the downside given high spare capacity, and downside risks to demand from weakness in China and potential trade tensions,” Goldman Sachs said.
Brent crude futures were down $1.63, or 2.24%, to $71.06 a barrel on Friday, their lowest level since December 2021. U.S. West Texas Intermediate crude futures fell $1.48 on Friday, or 2.14%, to $67.67, their lowest since June 2023. [O/R]
Commodities
Citi, Bank of America see oil prices potentially going to $60
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Investing.com — Strategists at Citi Research said oil prices could decline to around $60 per barrel by 2025, citing a significant market surplus as the primary driver.
While recent supply disruptions in Libya and a delayed production cut unwinding by OPEC+ have offered short-term support for Brent prices in the $70-72 range, Citi views this as temporary.
“At the time of writing, markets have not reacted to the OPEC+ decision, with Brent around flat to the 4 September close. Still, the Libyan situation could take months rather than a week to resolve, strategists wrote.
They highlight the likelihood of a strong market surplus emerging next year, pushing prices lower.
“We recommend selling on a bounce toward ~$80 Brent, as we look ahead to moves down to the $60 range in 2025 as a sizeable market surplus emerges,” the note states.
OPEC+ has delayed the start of its planned production cut unwind from October 2024 to December 2024, with the process now set to conclude by the end of 2025. This decision comes in response to recent market weakness and price declines, despite ongoing disruptions to Libyan oil supplies and broader economic concerns in the U.S. and China.
Separately, Bank of America’s Commodities Research team has revised down its price forecast to $75 per barrel for the second half of 2024, down from nearly $90, and for 2025, reduced from $80.
The team cites concerns about growing global oil inventories despite assuming OPEC+ will delay planned production increases. They note that weaker demand growth, combined with record OPEC+ spare capacity exceeding 5 million barrels per day, has dimmed the outlook for oil prices.
“In effect, we now see Brent oil prices moving from the top toward the middle of our unchanged $60-80/bbl medium-term range faster than previously warned,” BofA strategists said. This surplus in capacity, along with slower demand, also reduces the risk of price spikes from potential geopolitical disruptions.
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