Indonesian Agriculture Minister’s statement that his country will no longer import low-grade diesel fuel with effect from July 1 this year in line with the implementation of B50, is widely seen as an attempt to ‘talk the palm oil market up’.

B50 is a biofuel blend consisting of mineral oil diesel and biodiesel (made from crude palm oil - CPO) in equal measure.

Indonesia, the world’s largest palm oil producer (48 Million Metric Tons) with significant smallholder cultivation is also an exporter. In recent years, the country has prioritized energy security and has mandated diversion of palm oil for conversion into biodiesel (through a process called trans-esterification).

Palm biodiesel and mineral oil diesel are blended in a pre-decided proportion to fuel transport vehicles. Currently, Indonesia is struggling to achieve even the B40 target announced in January 2025. Mandatory blending involves huge fiscal burden.

The practicality of blending 50% biodiesel with mineral oil diesel remains questionable. A big challenge is whether internal-combustion engine vehicles will be able to burn B50 efficiently without damaging the engine. It may necessitate retro-fitting which has a cost attached.

Although world’s second largest producer (20 MMT) Malaysia sets the benchmark price for palm oil. CPO prices were languishing at around Ringgit Malaysia 4,000-4200 per MT (around USD 1,000/T) until February when Brent crude was trading at

$ 60-62 a barrel.

Military action in the Persian Gulf region changed the sentiment. Because of supply disruption, crude oil prices shot up over $ 100 a barrel. That provided a shot in the arm for palm oil through the biodiesel route. CPO prices are up 10% to around RM

4500/T.

What’s the global vegetable oil market outlook for Q2 and Q3 2026?

For 2025-26, production of major vegetable oils is forecast at 236.5 MMT, up 6.3

MMT from 230.2 MMT in the previous year. Palm and soy oils production is up. At 230 MMT global consumption is less than production. Simply put, there is no shortage of vegetable oils.

Yet, the fragile truce in the Middle East region and continued disruption of energy supply chain is likely to keep prices of both crude oil and vegetable oil elevated. It may take several months for crude oil production to rebound and supplies to normalize. Until then, palm oil prices will stay elevated. 

That palm oil has entered the peak production season from April onwards that will last till October is a saving grace. It will augment availability and moderate price spikes.

For India, the world’s largest importer (about 16 MMT worth $ 18-19 Billion), high prices of crude oil and vegetable oil will translate to energy inflation and food inflation. 

The looming of risk of El Nino driven dry conditions in the coming months can potentially hurt Kharif oilseed (soybean, groundnut) crop prospects, widen the shortage and result in higher cooking oil prices that hurt consumer interest.

If palm oil rates rise further, India will import more soybean oil in partial replacement of palm oil to meet its domestic consumption requirement. Currently there is a 10% customs duty on imported unrefined oils. If domestic price situation worsens, New Delhi may be forced to allow import at zero duty.

At the same time, it devolves on the Indian government to talk to the Indonesian government. India faces a $ 12-13 Billion goods trade deficit with Indonesia because of our large imports of palm oil, timber, coal, nickel and so on. This is ‘import power’ India must leverage and tell Indonesia that its palm oil supplies to India must remain uninterrupted. Indian policymakers have their job cut out.