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POINTERS ON THE PRICE TRENDS:
Crude Oil, Crude Palm Oil (CPO) and Covid-19
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By: Dr. James Fry
Dr Fry, LMC's Chairman, was educated at Oxford University, where he obtained an MA in Mathematics and a Doctorate in Economics. After teaching Economics at Magdalen College, Oxford University, in 1980 Dr Fry jointly founded LMC International, and is the company's Chairman. He continues to devote almost all his time to the company's research and consultancy activity and he is in overall charge of its work in commodity-based sectors.
LMC's headquarters are in Oxford, UK with offices in New York, Kuala Lumpur, Detroit, Shanghai, Bangkok and Frankfurt, with a partner office in São Paulo, Brazil
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The presentation will review how the big issues and question marks today, notably the impact of not only COVID-19, but also the battle between the Saudis and Russians to increase their share of the world petroleum market, have fed through to the palm oil market.
The paper will examine how well the price band has performed under these two pressures. It will also contrast the loss of palm oil output as a result of COVID-19 with the loss of demand caused by the pandemic, due to the lockdowns and the longer damage to global economies. This feeds through to palm oil stocks and, via the level of stock to the spread between CPO and crude petroleum prices, which will conclude the presentation.
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POINTERS ON THE PRICE TRENDS |
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Archives |
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MITIGATING THE NEXT WAVE OF MARKET UNCERTAINTIES Nov 14, '22 ~ Nov 18, '22 |
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ASSESSING 2022: MANAGING OPPORTUNITIES AND RISKS Mar 28, '22 ~ Apr 01, '22 |
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Section 2: Opportunities for Palm Oil in Asian Market Oct 18, '21 ~ Oct 24, '21 |
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Section 1: Oils & Fats Supply, Demand and Outlook Oct 18, '21 ~ Oct 24, '21 |
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Section 1: Price Direction Apr 05, '21 ~ Apr 11, '21 |
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Section 2 : Special Focus on the US Apr 05, '21 ~ Apr 11, '21 |
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POINTERS ON THE PRICE TRENDS Jun 22, '20 ~ Jun 28, '20 |
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Section 1 : CPO Price Trend Feb 24, '20 ~ Mar 01, '20 |
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Section 2: Global Palm Oil Market Opportunities Feb 24, '20 ~ Mar 01, '20 |
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Section 2: Special Focus Aug 19, '19 ~ Aug 25, '19 |
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Section 1 : CPO Price Trend Aug 19, '19 ~ Aug 25, '19 |
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Special Focus - India Feb 25, '19 ~ Feb 24, '19 |
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Section 1: CPO Price Trend Feb 18, '19 ~ Feb 24, '19 |
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Section 2: Global Palm Oil Market Focus Aug 06, '18 ~ Aug 12, '18 |
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Section 1: CPO Price Trend Aug 06, '18 ~ Aug 12, '18 |
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Section 2 : Global Palm Oil Market Focus Jan 29, '18 ~ Feb 04, '18 |
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Section 1: CPO Price Trend Jan 29, '18 ~ Feb 04, '18 |
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Section 2: Regional Focus : CIS Countries Aug 21, '17 ~ Aug 27, '17 |
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Section 1: Palm Oil Price Fundamentals Aug 21, '17 ~ Aug 27, '17 |
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Section 2: Market Challenges and Opportunities Feb 20, '17 ~ Feb 26, '17 |
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Section 1: Price Directions Feb 20, '17 ~ Feb 26, '17 |
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Section 1 : Palm Oil Price Fundamentals Aug 22, '16 ~ Aug 28, '16 |
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Section 2 : Trade Issues and Market Prospects Aug 22, '16 ~ Aug 28, '16 |
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2016 Market Direction - Twists and Turns of Palm Oil Prices Feb 22, '16 ~ Feb 29, '16 |
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Second Half 2015 - Anticipating Market Price Direction Aug 17, '15 ~ Aug 23, '15 |
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Special Focus: Indian Sub-Continent Aug 17, '15 ~ Aug 23, '15 |
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Opportunities, Challenges And Trend In 2015 CPO Price Feb 23, '15 ~ Mar 01, '15 |
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2nd Half 2014: Market Challenges, Predictions And Directions Aug 25, '14 ~ Aug 31, '14 |
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Anticipating 2014 Palm Oil Price Direction Feb 17, '14 ~ Feb 24, '14 |
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Prospects For Second Half Of 2013 - Managing Price Fluctuations Jul 22, '13 ~ Jul 29, '13 |
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Mapping The Palm Oil Price - 2013 Market Perspective Feb 18, '13 ~ Feb 27, '13 |
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Palm Oil : Challenges, Opportunities And Latest Market Directions Aug 06, '12 ~ Aug 17, '12 |
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2012 Price Direction, Issues & Challenges Feb 13, '12 ~ Feb 20, '12 |
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Challenges, Opportunities And Latest Price Trend Aug 08, '11 ~ Aug 16, '11 |
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Challenges, Opportunities And Price Direction Feb 07, '11 ~ Feb 17, '11 |
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2010 Year End Prospects - What Lies Ahead? Aug 02, '10 ~ Aug 08, '10 |
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Many thanks for your kind comments. On PKO, its premium in Rotterdam over Brent went close to $600 in the first weeks of this year. In May and June it fell towards $400. Despite some boost to demand from the production of chemicals for sanitisers, the seasonal increase in palm output will lift PKO output and cause PKO stocks to rise over the next six months. This PKO stock increase will pull the PKO premium over Brent down to $250. PKO will remain at a significant discount to CNO but this discount will narrow by $70 as some demand switches from CNO to PKO. ( Posted on behalf of Dr. James Fry)
4 years ago
The fundamental point about the relationship between CPO and the petroleum complex is that the cash costs of producing palm methyl ester from CPO are in the region of $100; therefore when EU CPO falls $100 below gasoil, palm methyl ester production costs will be similar to the gasoil price in Rotterdam. At that point, while PME and gasoil costs would be similar in Europe, PME would be cheaper than gasoil in SE Asia, since CPO in SE Asia is cheaper than in Europe (the difference being the sum of freight to Rotterdam and export taxes). That is what helps to defend the floor to the EU CPO price band, as some unsubsidised demand for biodiesel develops to take advantage of PMEs cheapness against diesel fuel. When stocks of palm oil in Malaysia fall back, the market gets tighter and CPO moves up first to a premium over Brent crude, and then later to a premium over gasoil. The upper limit to the CPO-Brent premium in Europe is just over $400 per tonne. This is the point at which palm biodiesel demand starts to be cut back and users switch to other oils. The CPO-Brent premium touched $400 briefly this year, but has already fallen back to around $300, and as MPOB stocks rise further, to go above 3 million tonnes, the premium will fall again. The low point is seen as being somewhere in the region of a $100 EU premium for CPO over Brent. This will not make unsubsidised biodiesel competitive, but will encourage some switching from other oils towards palm and bring back the B20 mandate in Malaysia, at which point the MPOB stocks will stop rising further. (Posted on behalf of Dr. James Fry)
4 years ago