Global Palm Oil Prices Expected to Rise on Narrowing Production Surplus and Strong Demand

Global palm oil prices are expected to rise due to a tightening near-term balance and a narrowing production surplus in the 2026-27 season, which begins in November. According to research agency BMI, a unit of Fitch Solutions, broadly flat global output—held back by a 3.5 per cent decline in Malaysian production—will be weighed against a consumption growth of 2.7 per cent. This increase is driven largely by Indonesia’s accelerating biodiesel programme, which is set to divert additional palm oil from the export market into the domestic fuel pool.

In the near term, robust Indian restocking ahead of the festive season and the disruption of shipments, mainly sunflower and soybean oils in the Black Sea, are providing additional price support. Furthermore, intensifying El Nino weather conditions introduce a risk to production. Consequently, BMI has raised its 2026 average price forecast for front-month Bursa Malaysia-listed crude palm oil (CPO) futures to Malaysian Ringgit (MYR) 4,453 per tonne, up from its previous forecast of MYR 4,300 held since October 2025. This revised forecast is approximately 4 per cent higher than the 2025 average of MYR 4,279 per tonne. BMI expects prices to average MYR 4,550 per tonne this quarter and MYR 4,582 in the next.

US-based Expert Market Research also noted that palm oil prices are expected to remain firm, with prices potentially topping MYR 6,000 ($1,500) a tonne. Currently, palm oil November futures are quoted at MYR 4,884 a tonne on the Malaysia Derivatives Exchange, while spot prices stand at MYR 4,946. Palm oil has gained nearly 20 per cent this year. From July 1, Indonesia implemented a biodiesel programme with a 50 per cent palm oil blend (B50), making it the first country to introduce such a high biofuel blend, which is expected to further boost domestic consumption and reduce export availability.

Looking further ahead, Dutch multinational financial services firm Rabobank stated that global palm oil prices will remain elevated between 2026 and 2031. This trend is driven by rising food demand, expanding biodiesel use across South-East Asia—including Malaysia's B15 and Thailand's push for B20 alongside its B7 mandate—and limited replanting of oil palm in Indonesia and Malaysia. Rabobank noted that while global production is expected to increase over this period, total output will likely fall short of demand, constraining export availability and tightening global supply.

For the 2026-27 season, BMI forecasts global palm oil production to reach 81.4 million tonnes (mt), marking a marginal decline of 20,000 tonnes from 2025-26. Meanwhile, global consumption is projected to rise by 2.7 per cent year-on-year to 79.9 mt. As demand growth outpaces broadly flat supply, the global production surplus is anticipated to narrow from the 3.6 mt recorded in 2025-26. Expert Market Research highlighted that the main upside risk is a combination of the B50 mandate reducing export availability and El Nino weather disruptions curbing production simultaneously, whereas downside risks include a smoother-than-expected seasonal production peak and continued competitive pressure from soybean and rapeseed oil.

Regionally, BMI has cut its Malaysian palm oil production forecast to 19.5 mt in 2026-27, down 3.5 per cent year-on-year. However, Indonesian production is projected to reach 47.5 mt in the next season, up 1.7 per cent, which could offset the impact of the downturn in Malaysian output. Lending further support to the uptrend is an anticipated increase in Indian demand, with imports expected to rise by over 5 per cent to 9.1 mt this season.

"The projected surge in global palm oil prices highlights the complex interplay between agriculture, government biofuel mandates, and shifting trade dynamics. With major producers like Indonesia prioritizing domestic biodiesel blending and adverse weather risks threatening supply, businesses relying on palm oil must adopt proactive procurement strategies. For supply chain stakeholders and agribusiness investors, understanding these macro-level supply and demand constraints will be crucial for risk management and long-term planning over the coming years." — Dr. Shishir Gupta, Founder & CEO, StartupLanes