President Trump’s Recovery Triggers Soybean Oil Price Rally

An improvement over the weekend in President Trump’s prognosis for recovery from his infection with the coronavirus triggered a sharp rally in equity and crude oil prices on Monday. The formation of Tropical Storm Delta in the Gulf of Mexico also supported West Texas Intermediate (WTI) futures, which rose nearly six percent. Crude oil futures rose steadily overnight, but the move higher accelerated following the U.S. opening. However, resistance just below the psychologically critical $40 per barrel level left futures to settle about one percent below the key level.

Soybean oil prices jumped about 2 3/4 percent (December contract +90 basis points per pound) as the rebound in energy triggered the liquidation of recently established short oil share positions by the funds. Buying below the lower Bollinger band limited early weakness in the overnight session, but prices accelerated sharply following the U.S. opening. The move left the benchmark December contract back above the 50-day moving average. However, the gains only reversed the decline posted on Friday and futures remain about 2 1/2 cents below the mid-September high. The Jacobsen expects trading to remain volatile this week due to the Dalian exchange’s reopening and the release of the United States Department of Agriculture’s (USDA) monthly World Agricultural Supply and Demand Estimates (WASDE) report. Still, world vegetable oil fundamentals remain bullish, and prices are just below The Jacobsen’s fair value assessment, so any decline will likely be short-lived.

In addition to the overnight strength in energy prices, excessive rainfall concerns helped support palm oil futures on Monday. Nearby contracts rose about 1/2 percent (December contract +13 ringgit per tonne), but gains in deferred futures were larger (March 2021 contract +25 ringgit). Selling above the 50-day moving average limited the gains but buying at the 2,700-ringgit level limited early weakness. Palm oil prices will likely rally on Tuesday due to the strength in soybean oil prices. However, traders will be looking forward to the reopening of the Dalian exchange and the Malaysian Palm Oil Board’s (MPOB’s) monthly report, which may limit aggressive positioning.