Rising prices of crude oil have a strong impact on Malaysian crude palm oil futures trading. With crude oil leaping over $134 per barrel on Friday, June 6, 2008 gaining $12 per barrel in just two days, Malaysian crude palm oil futures also soared around 3 % to hit a one-week high on the same day. The crude oil continued the price-hike on the basis of falling US dollar, which weakened following the report of sharp increase of 5.5 percent in unemployment rate in the US. Crude oil boosted up the Malaysian crude palm oil futures as well, but later quick profit-taking practiced by the investors slowed down the price-hike and settled the contract at slightly lower level. The main factors behind this quick profit-taking were slow demand in the international market, and rising production of palm oil in near future. Soy oil futures also exhibited almost a similar phenomenon, with soy oil futures of July at the Chicago Board of Trade rising 1.4 % in Asian trade on Friday, improving on the previously made massive gains on Thursday.

According to the industry analysts, Malaysian crude palm oil prices may experience a further upward trend in the next few weeks. Another 5 % to 10 % increase is expected in the price per ton by the end of June, 2008. Analysts believe that the demand for crude palm oil is going to get stronger in the due course, ultimately paving way for high prices. Moreover the crude palm oil production in June 2008 and crude oil price-movements in the international markets will also be the decisive factors behind price fluctuations.

1)      Demand  factor

 China and India are the big vegetable oil buyers in the Asian market. The demand forecast for crude palm oil in both the countries is quite upbeat. Similarly, demand in other parts of the world is also expected to go up. So the demand factor is definitely giving a green signal to the bullish trend in the prices of crude palm oil futures.

2) Production Factor

    The production of crude palm oil is quite high at the moment. This high production cycle would most likely slow down by the end of September 2008, consequently tightening the global vegetable oil supplies in the following months, October 2008 that is. One of the top Palm oil producers, the US will only increase its production by 2 million tons (which is half of the last year’s production increment of 4 million tons) in the oilseed year starting from September 2008.
The price of palm oil per ton can increase up to 25% during the period between October 2008 and February 2009. In the meanwhile, (during June, July and August) production factor does not signal a price-rally. It would most probably balance the upward price-hike in palm oil futures created by other factors. However, the prices can rally if adverse weather conditions hit the production cycle. 

3)      Crude oil Factor

Crude Oil price-movement directly impacts the edible oil futures trading in the world. With oil currently floating above $139 per barrel, persistent bullish trend is predicted in the near future by most of the analysts. Political factors may play a pivotal role in driving the crude oil prices, as always.  Israel's transport minister has recently declared an attack on Iranian nuclear sites "unavoidable". Further depreciation in the value of dollar is also expected; yet another bullish signal for the crude oil prices. Moreover Morgan Stanley report forecasted that the crude oil price could get to a record-high of $150 by July 4. So the upward price trend of crude oil is likely to drive the palm oil futures prices up in the next three weeks.

 
In my opinion, financial money is coming back to commodities. Dollar is getting weak, and inflation in the US as well as most of the countries in the world is currently on the rise. Consequently the investors are using commodities as a hedge against currency depreciation as well as inflation. Crude palm oil futures are in demand, and a persistent price hike is inevitable.