Palm Oil Advances as Crude Oil Rally Improves Biofuel Prospects

Dec. 15 (Bloomberg) -- Palm oil futures in Kuala Lumpur climbed after crude oil increased, raising the prospects for biofuels made from vegetable oils.

Crude advanced on speculation the Bush administration will rescue U.S. carmakers and the Organization of Petroleum Exporting Countries may make the biggest supply cut in a decade. Palm oil, used mainly in food, tracked crude prices much of this year as it is viable for use as a biofuel when oil trades above $80 a barrel.

“Although agriculture commodities have decoupled from crude oil’s downward move, a rise in crude oil price could still turn out to have positive effects on soybean and palm oil due to the rising biodiesel margin,” Alvin Tai, an analyst at OSK Research Sdn. in Kuala Lumpur, said in a report today.

Palm oil for January delivery rose as much as 3.1 percent to 1,630 ringgit ($449) a ton on the Malaysia Derivatives Exchange. Futures were at 1,604 ringgit at 11:45 a.m. local time.

Crude oil for January delivery rose as much as 2.6 percent to $47.49 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It last traded at $47.20 and reached a four-year low of $40.50 on Dec. 5.

Palm biodiesel at $610 a ton is profitable as an alternative fuel although crude oil prices have declined, said Tai. Crude palm oil prices could rise to 1,735 ringgit before the biodiesel margin turned negative and have room to move higher, he said.