Malaysia: El Niño and tight vegetable oil supplies support crude palm oil prices

• Forecasts for CPO are at $1,115/t in 2026 and $1,165/t in 2027
• August CPO prices rise to $1,143/t amid vegetable oil disruption 

Malaysia’s crude palm oil (CPO) prices have strengthened, with Kenanga Research expecting prices to remain elevated over the next three to six months. August CPO prices reached RM4,612/tonne ($1,143/t), around 7% above the first-half 2026 average of RM4,329/t ($1,073/t).

Weather risks could tighten palm oil supply

Kenanga sees weather as an increasingly important upside catalyst for CPO prices. Returning haze across Southeast Asia and expectations of stronger El Niño towards year-end could affect palm oil production in 2027 through forest fires, operational disruptions and weaker fresh fruit bunch (FFB) yields.

Historically, a strong El Niño has reduced palm oil production by around 2%-9%, potentially pushing CPO prices 5%-10% higher.

Plantation fundamentals also remain supportive. Upstream earnings increased 27% quarter-on-quarter and 3% year-on-year in 2Q26, while FFB harvests rose 14% quarter-on-quarter and 1% year-on-year. CPO prices increased 4% quarter-on-quarter and 1% year-on-year, although some forward sales at lower prices limited realised prices.

Biodiesel demand and vegetable oil disruptions support CPO

The CPO outlook is also supported by developments in competing vegetable oils. Stronger biodiesel demand amid the Middle East conflict is supporting palm oil demand, while Black Sea shipping disruptions threaten sunflower oil exports from Ukraine.

Against an already-tight global edible oil supply backdrop, reduced availability of competing oils could increase demand for palm oil and provide additional support to CPO prices.

Palm kernel prices also rose 10% quarter-on-quarter and 4% year-on-year in 2Q26, helping offset around 5% cost inflation. Meanwhile, downstream profitability strengthened sharply, although regional overcapacity is expected to limit downstream margins going forward.

Outlook

Kenanga has retained its CPO price forecasts at RM4,500/tonne ($1,115/tonne) for 2026 and RM4,700/tonne ($1,165/tonne) for 2027. CPO prices are expected to remain supported over the coming months as El Niño and haze threaten production, while stronger biodiesel demand and disruptions to competing vegetable oil supplies could further tighten the global edible oil balance.