Vegetable Oil Prices Rally on Short Covering, Can it Last?

Vegetable oil prices rallied sharply on Tuesday as fund liquidation of short oil share positions, and bullish cargo surveyor data drove buying. Crude oil also rallied on optimism about the potential for agreement on a U.S. stimulus package, contributing to the bullish tone. The benchmark West Texas Intermediate (WTI) contract gained a little more than one percent to settle at its highest price since late August.

Soybean oil futures jumped nearly 2 1/2 percent (December contract 78 basis points per pound) and settled near the high of the day. The move left the December contract back above the psychologically important 33-cent level and above the 50-day moving average after falling below that level on Monday for the first time since October 2. While short-covering may have driven the move on Tuesday, vegetable oil fundamentals remain relatively bullish. In the…