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(Bloomberg) — Palm oil futures extended a rally, heading for the fifth gain in six sessions, as oil’s jump back above $100 a barrel increases demand prospects for biofuel feedstocks.
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Brent oil soared as much as 10% after Oman cleared all ships from its key export oil terminal and two tankers were attacked in Iraqi waters. The surge across energy markets due to the conflict in the Middle East has brought palm oil near parity — or even at a discount — to gasoil this month, compared with an average premium of $313 per ton over the past year.
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The narrowing differential is making margins for biofuels production more attractive, said Rajesh Modi, a trader at Sprint Exim Pte in Singapore. Large volumes of palm oil are funneled into crop-based fuels, especially in top grower Indonesia. The country requires fuel to be mixed with 40% palm-based biodiesel, with plans to eventually raise the mandate to 50%.
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The government is still conducting trials for the higher blending rate, with vehicle road tests expected to be completed in June, according to Eniya Listiani Dewi, director general for new and renewable energy at the energy ministry.
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However, the war — and effective closure of the Strait of Hormuz — has also spurred a spike in prices for methanol in Southeast Asia. The alcohol is key to breaking down crops and converting them into fuel, and Indonesia has relied on the Middle East for most of its imports. If the war continues, that risks hampering biofuel production and deepening the region’s energy crunch.
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