Crude Palm Oil Weekly Report – June 22 2014

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Malaysian palm oil futures ended higher for the week on Friday although it closed lower on Friday due to weaker soyoil markets and poor export reports despite a recent spike in crude prices due to tensions in Iraq.

New futures crude palm oil (FCPO) benchmark for September contract settled at 2,442, which was up 15 points or 0.61 per cent from 2,427 last Friday. Trading volume increased to 214,547 contracts from 163,112 contracts totalled last week.

Open interest based on Thursday increased to 187,337 contracts from 173,321 contracts last Thursday. ITS reported that there was a decrease of 7.8 per cent for the first 15 days of June to 589,748 tonnes compared to May’s first 15 days at 639,414 tonnes.

On Friday, it reported a decrease of 5.8 per cent for the first 20 days of June to 806,303 tonnes compared to last month’s first 20 days at 856,128 tonnes.

SGS reported a decrease of 8.3 per cent to 586,701 tonnes for the first 15 days of June compared to last month at 640,101 tonnes. It also reported another decrease of 8.6 percent to 781,546 tonnes on Friday for the first 20 days of June compared to last month’s at 854,791 tonnes. The drag in exports was one of the many reasons why the gain in FCPO was limited for the week. Spot ringgit weakened for the week to 3.2225 compared to last week at 3.217.

Generally, ringgit weakened for the week, although it did strengthen to as low as 3.21 due to the US Federal Reserves view that the rates will probably rise a tad more in 2015 and 2016 compared to the previous forecast although the officials decided to lower their long term rate target. They were also comfortable about the outlook for inflation despite recent indications of a pick up in price pressures.

However, on Friday, ringgit weakened which was in tandem with most emerging Asian currencies. This was due to strong US data, and concerns over the rising cost of oil imports due to the conflict in Iraq. Throughout the week, FCPO rose steadily nearing the 2,480 level due to factors like weak ringgit and incoming hot weather.

However, poor export results despite the incoming Ramadhan festival and unexpectedly weaker soybean oil especially during Asian trading hour has capped the rise for FCPO market.

Another factor that affected exports were traders and investors sentiments as they pay close attention to the Iraq crisis which lead to steady crude oil futures for the week as Iraq militant crisis is far from over. Rising tensions in oil-producing Iraq could force Baghdad to import more oil products to meet its own domestic needs, which in turn could boost palm.

The crisis was also one of the main supporters for the current FCPO market as high crude price will benefit palm as the alternative in the biodiesel industry.

Technical view  

Based on the chart, price managed to go above 2,450 a level we mentioned previously, which is a critical resistance level.

However, it only managed to go to as high as 2,477 before it came back down to close for the week at the 2,440 level, which is below the resistance line.

We are currently still keeping our important price levels such as the resistance at 2,450 and support at 2,360.

For price to go further up, it needs to break and stay above this level for the week. If this condition is not met, it might consolidate or in the worst case scenario, retest the 2,360 level.

We are also observing the EMA 100 and EMA 200 lines where both are nearly intersecting with each other. The last time both lines met was last year in December. Should EMA 100 cross below EMA 200 level, we may see some selling activities to spur the market. However, due to its lagging nature, we suggest investors to pay attention in the coming weeks rather than to see it as the determinant to decide position inside the market.

Current EMA 60, 100 and 200 day level are pegged at 2,530, 2,558, and 2,556, respectively.

Key support levels are pegged at 2,420, 2,400 and 2,395-60. Key resistance levels are pegged at 2,450, 2,480, 2,500 and 2,515.

Major fundamental news this coming week

ITS and SGS report on June 25 (Wednesday).

Oriental Pacific Futures (OPF) is a Trading Participant and Clearing Participant of Bursa Malaysia Derivatives. You may reach us at www.opf.com.my. Disclaimer:  This article is written for general information only. The writers, publishers and OPF will not be held liable for any damage or trading losses that result from the use of this article.