KUALA LUMPUR: OCBC Global Markets Research has revised its 2024 crude palm oil (CPO) prices to average RM3,650 per tonne up from the previous estimate of RM3,400.
In the Monthly Commodity Outlook, the research firm said the upward price revision reflects a growing supply risk as El Nino weather disruption continues into 2024 with a mild but increasing intensity.
Both the Malaysian Palm Oil Board (MPOB) and the Indonesia Palm Oil Association (GAPKI) expect production to be largely stagnant this year due to the El Nino disruption.
Additionally, Indonesia’s efforts to boost its biofuels usage could potentially reduce its palm oil exports.
GAPKI expects Indonesia’s palm oil exports to fall by roughly four per cent to 29 tonnes this year compared to 2023 levels as domestic demand for the B35 blend mandate (35 per cent palm-based biodieselblended with 65 per cent diesel) rises.
A smaller price spread between palm oil and other vegetable oils may further encourage biofuel blending, it said.
Admittedly, OCBC Research said the intensity and duration of El Nino will remain a wildcard in the coming months.
“That being said, we expect the CPO price to trade within a range in the near term, on account of narrowing discounts of palm oil over other vegetable oils,” it said.
Moreover, the US Department of Agriculture (USDA) projected in its December WASDE report that soybean oil supply will increase by 2.9 million tonnes in 2023/2024 to reach 61.9 million tonnes.
This, in turn, contributes to expectations of a slightly lower soybean oil price.
Meanwhile, OCBC Research has forecasted Brent oil prices to average US$80 per barrel versus US$82 in 2023.
The softer Brent price forecast is based on weaker global growth and a relatively comfortable supply outlook.
It believes that supply will likely remain ample to meet demand in 2024.
Despite supply cuts from the Organisation of the Petroleum Exporting Countries (OPEC) and allies which increased to 3.9 million barrels a day (mbpd) for the first quarter of 2024 (1Q 2024) from 3.0 mbpd in December 2023, higher oil supply from countries such as the US, Brazil, and Iran will keep the global oil market supported.
These countries produced 29.6 mbpd in December 2023 (28.7 per cent of total world demand) versus 26.2 mbpd in the same period last year (26.0 per cent of total world demand), according to the US Energy Information Administration (EIA).
The easing of US sanctions on Venezuelan oil — the largest OPEC-proven crude reserves at end-2022 — is another avenue for increased oil flows.
OCBC said an extension of additional voluntary cuts beyond 1Q2024 by the OPEC+ alliance may tip the global supply-demand balance.
“However, the boost to global oil prices remains in question given the larger non-OPEC production coming online in 2024,” it said. – Bernama