Palm oil prices surged sharply on Monday, recording their largest single-day gain in three years after escalating geopolitical tensions in the Middle East pushed crude oil prices above US$100 per barrel.
Benchmark palm oil futures for May delivery on the Bursa Malaysia Derivatives Exchange jumped 9 percent at the market open on March 9, reaching 4,774 ringgit ($1,204) per ton. The increase followed a 3.7 percent rise the previous Friday, signaling strong bullish momentum in the vegetable oil market.
The price rally comes amid intensifying military tensions involving Iran, Israel, and the United States. The crisis, now entering its tenth day, has disrupted global energy markets after the strategic Strait of Hormuz was reportedly closed. The waterway is one of the world’s most critical oil shipping routes, and its closure has contributed to a sharp spike in global crude prices.
Several major Middle Eastern oil producers, including Iraq and Kuwait, have also announced output cuts as storage facilities quickly filled due to disruptions in global supply chains. These developments have intensified fears of an energy supply shock, further pushing crude oil prices beyond the $100-per-barrel mark.
Higher crude prices typically strengthen palm oil markets because vegetable oils become more competitive as feedstock for biodiesel production. When petroleum-based fuels become more expensive, biodiesel derived from palm oil becomes a more attractive alternative for fuel blending and renewable energy programs.
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Data from commodity analytics firm S&P Global Platts shows that the price spread between palm oil traded on Bursa Malaysia and gasoil futures in Singapore narrowed significantly to $177.96 per ton as of March 6. This represents a drop of roughly 44 percent compared with the same period last year. In 2025, the average price spread between these products was about $328.45 per ton, much wider than current levels.
Market analysts say such reactions are common when crude oil markets become volatile. Vegetable oils often rally in tandem with energy markets because of their role in renewable fuel production. If geopolitical tensions in the Middle East continue, analysts believe palm oil prices could remain supported throughout 2026.
However, the outlook for palm oil demand remains mixed. Despite earlier expectations of a strong rebound, palm oil prices fell by about 9 percent on the Malaysian exchange in 2025, ending the year at around 4,050 ringgit per ton. This decline followed a strong 20 percent increase in 2024.
One key factor affecting market expectations has been policy developments in Indonesia, the world’s largest palm oil producer. The government had initially planned to introduce a mandatory B50 biodiesel blend—requiring diesel fuel to contain 50 percent palm-based biodiesel—but later postponed the policy due to technical and financial challenges. Instead, Indonesia confirmed it would maintain the B40 mandate, which requires diesel to contain 40 percent palm-derived biodiesel.
Indonesia also increased export levies and taxes on palm oil on March 1, raising the combined charge from $165.85 to $241.36 per ton. Analysts say the higher export costs could encourage producers to divert more palm oil toward domestic uses such as refining and biodiesel production, potentially reducing global export supply and supporting prices.
Meanwhile, demand trends in India, the world’s largest palm oil importer, will also play a key role in shaping market direction. Data shows that Indian refiners increased purchases by 10.1 percent in February to 844,000 tons, the highest level in six months.
Despite the recent price surge, analysts caution that higher palm oil prices could eventually curb demand and shift buyers toward competing vegetable oils such as soybean oil, which currently benefits from abundant global supply.
For now, however, geopolitical uncertainty in the Middle East and rising energy prices are providing strong support to the palm oil market, highlighting the close link between agricultural commodities and global energy dynamics.
