Palm Oil Declines as Crude Oil Extends Drop From One-Year High

Oct. 21 (Bloomberg) -- Palm oil declined for a second day from its highest level in almost six weeks as crude oil extended its retreat from a one-year high, reducing palm’s appeal as an alternative fuel.

Palm oil for January delivery slipped as much as 1 percent to 2,159 ringgit ($637) a ton and traded at 2,168 ringgit by the 12:30 p.m. break on the Malaysia Derivatives Exchange. Crude oil for December delivery dropped as much as 0.8 percent to $78.46 a barrel in New York and traded at $78.68.

“We are optimistic on crude oil,” Nirgunan Tiruchelvam, a plantation analyst at Royal Bank of Scotland Asia Securities (Singapore) Pte., said by telephone today. “In such a context, palm oil does look undervalued.” The edible oil has gained 28 percent this year, less than half the 76 percent jump in crude, which reached a high of $80.05 a barrel yesterday.

“We reiterate our optimism on crude palm oil prices,” Tiruchelvam said. He forecasts an average of $717 a ton this year, implying about $800 for the rest of the year, he said. Crude oil has advanced for three weeks, gaining 19 percent to Oct. 16, and “a similar run-up of crude palm oil prices is in the offing,” he said.

Palm oil may climb to between 2,500 and 2,600 ringgit in the next three to four weeks as the drop in crude may be temporary, Harish Galipelli, head of research at Kochi-based JRG Wealth Management, which advises traders, said yesterday.