Assuming that our base case scenario (that the Middle East ceasefire will be maintained past two weeks with no further escalation) pans out, CPO prices should settle at MYR4,200-4,500/tonne. This implies higher biodiesel mandates will still be in place, which may lead to tighter overall supplies of vegetable oils globally – with 2026F stock/usage ratios being below historical averages.
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Palm oil-gas oil (POGO) spread is positive again.
The correlation between the prices of CPO and crude oil has moderated to 0.75x (from a high of 0.9x at the start of the US/Israel-Iran war). With this, the POGO spread is positive again (CPO > gas oil), albeit at a small +US$11.70/bbl (vs -US$43/bbl at end-March and +US$52/bbl as at early 2026).
At the current POGO spread, we estimate there will still be enough money in the Indonesia biodiesel fund to subsidise B50 at current export tax and levy rates.
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Three geopolitical scenarios.
RHB Economics’ base case scenario with a 60% probability is that the ceasefire will be maintained past two weeks, with no further escalation for the rest of 2026. Should this occur, oil prices should decline moderately, and settle at mid-US$80/bbl levels. CPO prices could settle at around MYR4,300-4,500/tonne, assuming a similar price correlation.
At these levels, the POGO spread would likely still be relatively small, meaning increased biodiesel mandates would still be feasible.
Stock/usage ratios likely to drop to below historical averages with B50.
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Above is an excerpt from a report by RHB Securities Research. Clients of RHB may be the first to access the full PDF report @ https://www.rhbtradesmart.com/.
