Palm Oil Extends Advance, Tracking Three-Day Surge in Crude Oil

Aug. 4 (Bloomberg) -- Palm oil futures advanced a fourth day as the world’s cheapest edible oil, which can also be used in biofuels applications, tracked a rally in crude oil.

“Bio-diesel demand varies sharply from month to month,” responding to crude oil prices, James Fry, managing director of UK-based agricultural industry consultant LMC International Ltd., said in a presentation e-mailed today. A combination of “$70 crude oil and tight Malaysian stocks implies prices will move above $800 by December,” he added.

Palm oil for October delivery on the Malaysia Derivatives Exchange gained 2 percent to 2,341 ringgit ($670) a metric ton at the 12:30 p.m. trading pause. The contract has advanced 11 percent in four days.

If the contract sustains today’s advance, it will be the longest and steepest winning streak since a four-day gain of 15 percent ended April 14.

Crude oil traded in New York surged 13 percent in the past three trading days and last traded at $71.21 a barrel.

Palm oil is used mainly in food and any increases in bio- diesel demand would support prices as “my latest forecasts point to an unusually small seasonal rise in stocks,” Fry said.

Stockpiles in Malaysia, the second largest producer, expanded for a second month in June, rising 2.5 percent to a four-month high of 1.41 million tons, according to the country’s Palm Oil Board. July numbers will be announced next week.

Palm oil has averaged $610 a ton this year, while crude oil has averaged $53.83 a barrel, according to Bloomberg data. Crude oil has jumped 60 percent this year, while palm oil has added 37 percent.

An average Brent crude price of $65 a barrel would “imply that palm oil prices will approach $800 by the year-end,” Fry said in the presentation.