Soybean Oil Continues to Fall on Soy Complex Selling

World vegetable oil prices were weaker on Monday as overnight weakness in crude oil prices weighed on values. West Texas Intermediate (WTI) futures traded below $34 per barrel in the overnight session before prices rallied following the Russian government’s announcement of a proposal to delay a hike in crude oil output from countries in the Organization of Petroleum Exporting Countries (OPEC+) and other aligned countries. The rally left the benchmark December WTI contract back above $36 per barrel and above the lower Bollinger band for the first time in the last four days. However, selling at the $37 level and the five-day exponential moving average limited the advance.

Last week’s weakness in crude oil prices weighed on palm oil and soybean oil values. Despite the weakness in world vegetable oil values, the spread between soybean oil prices and heating oil prices (HOBO) rose above the high set in mid-September. If the crude oil prices can continue to rally, world vegetable oil prices may find a bid. However, the HOBO spread remains close to the recent highs, which, in theory, could weigh on demand from biodiesel producers.

Nearby soybean oil futures fell about 1 1/4 percent (December contract -42 basis points per pound), but the decline in deferred contracts was smaller (December 2021 contract -15 basis points). Support at the trendline formed by the lows set on October 5 and 29 and buying at the 33-cent level limited the overnight decline. Prices then rallied sharply and rose close to unchanged following the Russian government’s announcement, but weakness in soybean futures and meal/oil spreading by the funds drove futures close to the low of the day shortly before the close. After the session, the United States Department of Agriculture (USDA) released its monthly Fats and Oils report, which featured end-of-September soybean oil inventories, in line with The Jacobsen’s expectation and close to the upper end of the range of analysts’ pre-report estimates.

While soybean oil prices have remained in a wide range between 32.5 cents and 34.5 cents since mid-September, a rally in energy prices may provide support in the short term. However, fund spreading, driven by strong soybean meal demand and prices, could limit any rally and keep soybean oil prices range-bound. Support remains at the 33-cent level and the shorter-term trend line (just above the 33-cent level on Tuesday). Resistance is likely at the 34-cent level and the upper Bollinger band (34.38 cents as of Monday’s close).

Nearby palm oil prices fell about 1 1/4 percent (January contract -36 ringgit per tonne), but the decline in deferred contracts was smaller (January 2022 contract -13 ringgit). Weakness in crude oil prices was the driving factor. However, cargo surveyor data indicating Malaysian palm oil shipments during October rose about five percent from September limited the early decline. Buying at the 20-day moving average also limited the fall. Traders are looking forward to the monthly supply and demand estimates from the Malaysian Palm Oil Board (MPOB) to indicate the impact of the Malaysian government’s measures to slow the coronavirus’s spread on palm oil output to determine the short-term trend in prices. However, a recovery in crude oil prices would be supportive. Short-term support remains at the 2,900 ringgit level and the 50-day moving average (2,825 ringgit as of Monday’s close). Resistance is likely at the 3,000 ringgit level and the upper Bollinger band, which is just above the 3,100-ringgit level.