Palm Oil Declines on Crude, Ending Longest Gain in Six Months

Aug. 6 (Bloomberg) -- Palm oil futures dropped, ending the longest rally in six months, as crude oil prices eased, reducing its appeal as an alternative fuel.

Futures declined after oil fell from a seven-week high after crude stockpiles in the U.S., the largest energy-using nation, increased as refiners reduced processing. Vegetable oils, which are used as biofuels, often track crude.

“There has been a powerful rally,” and now this is a correction, said Nirgunan Tiruchelvam, a plantation analyst at RBS Asia Securities Singapore Pte., by telephone.

October-delivery palm oil dropped as much as 2.6 percent to 2,275 ringgit ($652) a ton on the Malaysia Derivatives Exchange and was at 2,303 ringgit by the 3:14 p.m. Futures advanced more than 10 percent in the previous five days, the longest gain since the period ended Feb. 10.

Still, as long as crude stays above $70 a barrel, confidence in palm oil prices staying high will remain as demand in China and India, the largest markets, is strong, Tiruchelvam said. Supplies may be curbed because of lower yields from tree stress, less use of fertilizer and unfavorable weather, he said.

Crude oil in New York dropped as much as 1.1 percent to $71.19 a barrel and was last traded at $71.65 a barrel.

Crude prices above $70 oil would spur demand for bio-diesel that could drive palm oil prices above $800 by the year-end amid tight supplies, James Fry, managing director of UK-based agricultural industry consultant LMC International Ltd., said Aug. 3.

Palm oil has gained 35 percent this year, as drought curbs soybean crops in South America. Soybean oil and palm oil are substitutes. The U.S., the largest soybean grower ahead of Brazil and Argentina, will release data on its soybean crop next week.