Malaysian crude oil for August delivery, the current benchmark contract, gapped lower through the contract's 20-day moving average on May 31, closing 9.7% lower for a fresh contract low. The continuous active chart (attached) shows a third consecutive monthly loss, losing 9.2% in March, a further 11.2% in April and extending this loss by 4.1% in May. The May 31 low is the lowest trade reached since January 2021 in local currency terms.
While not shown, the monthly chart close at the end of May shows the August contract settling just below the 75% retracement level of the move from the May 2020 low to the March 2022 high. It took almost two years to rally to the high, while just over a year to give up roughly 75% of the gains. It's often said that markets take the escalator up and the elevator down.
The move has a detrimental spill-over effect for global oilseed and vegetable oil markets, with Dow Jones commentary indicating that spill-over weakness from the soybean oil market is weighing on palm oil on certain days, while on other days they report the opposite, palm oil weakness is driving soybean oil lower.
Today, the Financial Times (ft.com) reported that Indonesia and Malaysia are indicating that they are prepared to delay trade talks with the European Union as the two major palm oil producers seek more favourable treatment for what they claim are small palm oil producers that will be adversely affected by the EU's recent legislation to prevent deforestation.
This legislation was agreed to in December, set to take effect in 2024, which bans imports of cattle, cocoa, palm oil, soybeans, wood and rubber sold in the EU unless it originates from "sustainably managed" land. The laws are viewed to add a huge administrative burden to smaller producers that lack resources, with ft.com reporting that importers claim that a huge administrative burden will be created in this move, with a reported 1.2 million documents needed by importers to import one 20-foot container of product into the EU.
A ProphetX chart of competing oils FOB Rotterdam based in U.S. dollars shows prices for four competing oils tightly grouped, ranging from $830/metric ton for sunflower oil to $869/mt for rapeseed oil. There is currently a $14/mt spread between crude palm oil and rapeseed oil. A look back at the 2022 highs showed a range from the lowest high (crude palm oil) at $1,888/mt to the highest high (canola) at $2,329/mt, reached one month later.
The stand-off between Malaysia and Indonesia bears watching and could prove to be an opportunity for the rapeseed/canola market.
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