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Prices of palm oil and soyabean oil have surged after the conflict between Israel and Iran pushed up energy costs and the Trump administration proposed increasing the amount of biofuels mixed into diesel and petrol.
Soyabean oil has jumped 11 per cent since Thursday, hitting its highest level since October 2023 at more than 55 cents a pound. Palm oil, which had been falling this year due to a supply glut, has gained more than 6 per cent to almost 4,100 ringgit a ton this week.
These edible oils are in demand amid a hunt for cheaper energy sources, driven by a roughly 8 per cent jump in the price of Brent crude since Israel launched air strikes against Tehran’s nuclear programme and military facilities at the end of last week.
“The major factor for this jump is due to energy prices, prices of crude, because of this conflict,” said Darren Lim, a commodities strategist at Singapore-based brokerage Phillip Nova, adding that edible oil prices are tracking the grains in crude.
“Higher energy prices push up palm oil production costs and also the potential demand for biofuels, because they act as an alternative energy source.”
Gains have also been driven by the US Environmental Protection Agency’s proposal last week to increase the amount of biofuels that refiners need to mix into diesel and petrol by 8 per cent to a record 24.02bn gallons next year.
The plan includes a 67 per cent increase in the target amount for biomass-based diesel — typically made from soyabean oil and used cooking oil — to 5.61bn gallons. This was higher than the 5.25bn gallons that had been proposed by US oil and biofuel groups earlier this year and came as a welcome surprise to commodity traders with bullish positions.
The EPA also halved the number of compliance credits granted for biofuels made from foreign feedstocks, such as Canadian rapeseed or Chinese used cooking oil. Such credits are generated when biofuels are produced or imported, and companies can buy or sell them to meet their annual EPA biofuel blending quotas.
The move hands a competitive edge to US producers and helps support domestic soyabean demand. It follows pressure from both the oil and biofuel industries, and is also seen by analysts as a political move to help US farmers caught in the crosshairs of Trump’s turbulent trade policy.
“If you put those two parts together, it was a very bullish announcement for US soyabean oil,” said Charles Hart, senior commodities analyst at Rabobank. He also pointed to data from the National Oilseed Processors Association showing US soyabean oil stocks fell to 1.37bn pounds at the end of May, 20 per cent below a year ago and the lowest May level since 2004.
“You have increased domestic demand from the mandate, support from rising crude prices and tighter supply,” he added.
Imported feedstocks have accounted for a growing share of US biomass-based diesel inputs in recent years.
Speculators cut their net long positions in soyabean oil futures in the week leading up to the EPA’s announcement, according to Commodity Futures Trading Commission data. After the EPA’s announcement proved to be more positive for the US industry than expected, speculators bought back positions, which is likely to have fuelled the rally, said Hart.
Palm oil, the cheapest major edible oil, tends to track soyabean oil prices closely, especially in key importing markets such as India, where consumers often switch between the two depending on price, said Lim. Indian consumers have recently increased palm oil purchases following a cut to import taxes.
Sustained, high fossil fuel prices have historically driven investment in cheaper alternative energy sources, including biofuels.
“The development of biofuel sectors — not just in the US but globally — has been tied to energy security,” said Hart, citing both geopolitical risks and efforts to reduce energy import bills. “It also provides some insulation against exogenous shocks in the global crude market.”
US soyabean growers have endured years of trade disruption, most notably due to the Trump administration’s tariff battles with China, which slashed a key export market. More recently, they have faced a difficult mix of falling global prices, rising input costs and sluggish export demand.
Trump has long tried to balance the interests of both fossil fuel groups and biofuel producers, two influential blocs in the US heartland. In his first term, repeated waivers for small oil refiners angered corn and soyabean farmers, key constituents in swing states such as Iowa.
“This is a measure of support for the US soyabean sector at a time of relative uncertainty for exports, given the current tensions in the US-China trading relationship,” said Hart.
Public hearings on the EPA’s proposal are scheduled for July 8, but a final decision could take months. In the meantime, analysts expect continued volatility in vegetable oil markets.
“It depends on the magnitude and the duration of how long this Middle East crisis will last,” said Phillip Nova’s Lim. “If the severity remains the same but drags on, prices may slowly come off. But if it escalates, you’ll see a fast reaction.”