Bearish bias seen in crude palm oil market in near term

THE crude palm oil (CPO) market continued to buoy higher owing to poor fundamentals, but is currently facing technical resistance that is preventing it from advancing further in the near term.

Weak production forecasts since the start of the year and a displacement in sunflower oil due to the Russia-Ukraine conflict have been consistently providing support to the CPO market for the past few months.

In the second quarter, end-March palm oil inventories from Malaysia came out at the lower end of estimates, according to data released by the Malaysian Palm Oil Board (MPOB). The data also marked the fifth consecutive month of decline and served as a catalyst for the CPO market to stage a bounce in early April.

The rally stretched into late-April as a surprise announcement by Indonesian President Joko Widodo to ban shipments of cooking oil and its raw material sent jitters through the market. Although further clarification stated that the ban only applied to palm olein, a product of CPO, fears that the ban may eventually include CPO sparked concerns of supply uncertainty in the world’s largest palm oil producing country. This sent CPO prices back to its last all-time high seen in March before cooling slightly in early-May.

Technical outlook

Based on the rolling third contract month of BMD crude palm oil futures, CPO prices saw a strong surge in late April due to the Indonesian palm oil ban, bringing the contract back towards the last all-time high of RM7,268 (S$2,304) per metric tonne recorded on March 9, 2022. However, it failed to break above and this suggests the price level to be of significant resistance to the market. The contract has also formed a double top formation, indicating a bearish bias in the near term.

For the mid-term, fundamentals remain weak and bullishness is expected to persist in the market. From a technical perspective, the uptrend also remains intact as key indicators including the 50-day, 100-day and 200-day simple moving averages are still trending higher.

Should prices fall in the near term, the market can expect support to come in at the 50-day, 100-day and 200-day simple moving averages. Additional support can also be found at the price levels of RM6,097 per metric tonne (low of April 25, 2022), RM5,757 per metric tonne (low of April 7, 2022) and RM5,477 per metric tonne (low of April 1, 2022).

On the contrary, an alternative scenario may happen should there be renewed uncertainty or geopolitical risks. This could come in the form of surprise announcements from key palm oil producing or consuming countries. Should this happen, we can expect the market to break above the RM7,268 per metric tonne level and log new highs.

The writer is commodities manager at Phillip Future