Crude Palm Oil Weekly Report – December 15, 2018

The Malaysian palm oil futures (FCPO) closed higher for the third consecutive session, buoyed by the slowdown in output reported in November’s monthly data from Malaysia Palm Oil Board (MPOB) and easing stock levels in Indonesia.

On Friday, FCPO decreased 3.5 per cent to 2,068 as compared with last Friday’s closing price at 1,998, a totaled of 70 points.

Average trading volume slumped from 43,128 contracts to 34,646 contracts from previous week, a total decline of 24.48 per cent.

There was a 1.1 per cent decrease to 248,236 contracts from 245,534 contracts in the daily average open interest as compared with the previous week.

The latest AmSpec showed a decrease of 5.22 per cent in exports on December 1 to 10, a total of 299,527 MT, from 307,323 MT shipped during November 1 to 25.

Societe Generale de Surveillance (SGS) reported that palm oil products exports declined 9.58 per cent during December 1 to 10 to 312,160 tonnes from 345,219 tonnes shipped during November 1 to 10.

On Monday, the release of the latest monthly report from MPOB showed that production in November slid 6.09 per cent from the previous month to 1.85 million tonnes, while the inventories also rose 10.5 per cent from October to 3.007 million tonnes.

However, exports fell 12.9 per cent to 1.375 million tonnes, the first time in five months. FCPO reversed earlier session’s losses and rose over two per cent higher on Monday.

The positive catalyst from MPOB, especially the slowing output boosted market confidence amid the competitive advantage from the largest-producer in the world, Indonesia due to a temporarily cut of export tax as well as uncertainties arising from the trade war between US and China.

Crude oil prices rose on Thursday before the release of the weekly Energy Information Administration (EIA) as both crude oil (West Texas Intermediate & Brent oil) were up 97 cents, or 1.9 per cent at US$52.61 per barrel and 99 cents, or 1.6 per cent to US$61.19 per barrel respectively.

However, the slump came after the IEA warned that US shale’s influence over global crude markets is only going to get stronger despite the drawdown in US crude inventories which normally caused the crude oil price to rise.

China, on Wednesday, made its first major purchases of US soybeans since President Donald Trump and his Chinese counterpart Xi Jinping struck a trade war truce earlier this month, providing some relief to US farmers who have struggled to find buyers for their record- large harvest.

However, the purchase disappointed traders which they hoped for larger sales to lift slumping prices and absorb a huge surplus across the US farm belt.

Both news were negative catalysts for crude oils and soybean oil but it brought minimal impact towards Malaysia’s palm oil as the positive catalyst from MPOB provided cushion towards the impacts from both related oils.

Palm oil prices are impacted by movements of crude oil, as the edible oil is used as feedstock to biodiesel.

It is also affected by the changes in soybean oil prices, as they compete for a share in the global vegetable oil market.

Spot ringgit depreciated 0.47 per cent to 4.1815 against the US dollar, compared with 4.1620 last Friday.

The dollar firmed against most major counterparts on Friday, as investors’ focus shifted to an expected US interest rate hike this coming week, although gains are likely to be capped due to greater uncertainties about next year’s policy outlook.

Technical analysis

From the hourly chart, the first higher low was formed around 2,000 level and a second higher low was formed around 2,041 level, indicating that FCPO is heading upwards and bullish rebound is imminent.

Moreover, FCPO also broke EMA 25, which suggested FCPO may start to rise upwards in the short-term.

This is also supported by RSI which is heading towards 60 and will retest this level.

Overall, FCPO may experience a shortterm bullish rebound but traders might need to remain cautious as the bear is still gaining the upper hand.

This coming week, FCPO might continue to trade higher.

If FCPO fails to break above the first resistance level, it may trade towards the first support level.

Resistance lines will be positioned at 2,100 and 2,080, whereas support lines will be at 2,000, and 1,980.

These levels will be observed in the coming week.

Major fundamental news this coming week

AmSpec and SGS reports will be released on December 15 (Saturday).

Oriental Pacific Futures ( OPF) is a Trading Participant and Clearing Participant of Bursa Malaysia Derivatives. You may reach us at www.opf.com.my. Disclaimer: This article is written for general information only. The writers, publishers and OPF will not be held liable for any damage or trading losses that result from the use of this article.