The Oil Markets Just Split in Two
Soy and palm are no longer telling the same story. What that means for everyone from Kuala Lumpur’s trading floors to the biodiesel plants of Southeast Asia.
Something shifted in the vegetable oil markets this year, and it happened fast enough that many traders in Kuala Lumpur are still recalibrating. Soybean oil has quietly staged one of the most dramatic rallies in the commodity space, surging more than 50% year to date in Chicago, while benchmark palm oil futures on Bursa Malaysia have moved a comparatively modest 9.5% higher over the same period. The spread between the two, once a relatively stable barometer of competitive feedstock pricing, has blown out to a US$507 per tonne premium for soy oil over palm, the widest gap since October 2023. At the start of this year, that same spread sat at just US$73 per tonne.
These are not routine fluctuations. This is a structural divergence, and its driver is sitting squarely in Washington.
Why Soy Oil Is Flying and Palm Is Not
The answer comes down to fuel, not food. US renewable fuel blending mandates are absorbing soy oil at a scale that has effectively removed it from the normal competitive calculus with palm. Domestic demand from the American biodiesel and sustainable aviation fuel sectors is soaking up volumes that would otherwise flow into food channels, creating a price floor that has little to do with crush margins, crop yields, or cooking oil demand in Asia.
Chicago July soybean oil was quoted at 74 cents per pound this week. That number would have been remarkable 18 months ago. Today it reflects a market that has been partially ring-fenced by policy.
Budiman Suwardi, Head of Treasury and Markets at Prime EcoHarvest Commodities, framed it plainly: “Right now, you can’t compare between the two. Soy oil prices in the US are going to be supported by US renewable fuel mandates, which will need huge volumes of soy oil, while Malaysian palm futures are moving on the Asian biodiesel story and demand for cooking oil.”
That decoupling is the crux of what is happening. Two oils that have historically moved in rough tandem, because buyers could substitute one for the other depending on price, are now being pulled by entirely separate demand mechanisms operating on different continents.
Palm’s Own Equation
Palm oil is not in trouble. But it is operating on a different set of pressures right now, and some of them are pointing in the wrong direction for near-term price support.
Bursa Malaysia’s July palm contract reached as high as RM4,444 per tonne this week before settling around RM4,436 per tonne at midday, a gain of roughly 1.2% on the session. The year-to-date move of approximately 9.5% is respectable in any normal read of the market. But measured against soy oil’s performance, the contrast is stark.
Seasonal output cycles are working against palm right now.
Indonesia and Malaysia are moving through a period of higher production, which tends to weigh on prices when demand signals are not strong enough to absorb the additional supply. Compounding that, buying interest from India, one of the market’s most significant demand anchors, has softened, removing a support mechanism the market has relied on in previous cycles.
On the Dalian Commodity Exchange, the picture is more nuanced. September refined palm contracts were priced at 9,469 yuan per tonne, while September soybean oil contracts sat at 8,485 yuan per tonne, meaning palm commands a premium in the Chinese futures market, which reflects different import dynamics and domestic consumption patterns. The inversion relative to the Chicago spread is a reminder that vegetable oil markets are simultaneously global and intensely regional.
The Biodiesel Feedstock Calculus
Perhaps the most consequential number in the current market is one that rarely makes headlines outside trading desks: the spread between palm oil and gasoil, the fossil fuel benchmark against which biodiesel economics are measured.
Palm oil is currently trading at a discount of approximately US$42 per tonne to gasoil. Over the past year, the average relationship has been a premium of roughly US$242 per tonne, meaning palm was more expensive than the fuel it was meant to replace, which significantly dampened biodiesel blending incentives. The current discount flips that logic. Palm-based biodiesel now makes economic sense as a blending feedstock in a way it has not for much of the past year.
Whether that translates into meaningful additional demand depends on how quickly Southeast Asian blending mandates can respond, and how much of that latent feedstock demand actually gets activated through policy rather than simply existing as theoretical headroom.
Two Markets, Two Futures
What the current spread tells us is that biofuel mandates are now powerful enough to detach individual vegetable oils from their traditional pricing relationships. Soy oil, tied to US renewable fuel policy, is a different instrument than it was five years ago. Palm oil, still governed by Asian food demand cycles, seasonal supply dynamics, and regional biodiesel policy, is operating by a separate set of rules.
For producers in Malaysia and Indonesia, that is not necessarily a problem. Palm remains cost-competitive, and the biodiesel economics have actually improved considerably. But for anyone still modelling these markets as though soy and palm will eventually revert to a narrow, stable spread, the current data suggests that assumption needs revisiting.
The markets split. The question now is how long they stay that way.
