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PMO-gasoil spread hits multi-year high as crude oil prices plunge

Increase font size  Decrease font size Date:2015-12-10   Views:705
As front month Singapore ICE gasoil futures tumbled in the wake of the OPEC meeting on Friday where the production ceiling for crude oil was not even discussed, the spread between the palm oil futures and the Singapore ICE gasoil front month contract widened to a record $137.14/mt Monday.

This is $17.24/mt wider from a spread of $119.93 on Friday.

Last week, the spread between palm oil and gasoil futures widened steadily from $88.67/mt on Monday. Singapore ICE gasoil closed at $395/mt Monday, down from $401/mt on Friday.

Industry observers including Dorab Patel of Godrej International said they expected palm oil prices on the Bursa Malaysia exchange to rise in 2016. Palm oil prices are in contango, with the January contract trading at a $20/mt premium to December and February at a $20/mt premium to January, a producer pointed out.

The main driver is the El Nino weather effect, which has reached a "strong" level of 1.5 on the Oceanic Nino Indicator or ONI, according to Barnabas Gan, an economist with OCBC Bank.

PMO prices were expected to peak in August 2016, according to the ONI model.

PMO production is entering its low production season, said CIMB Bank's deputy head of research Ivy Ng. Due to the unpredictability of the weather, prices on Bursa Malaysia were likely to exhibit increased volatility, she added.

The other factor driving PMO prices were Indonesia's B-15 and B-20 biodiesel blending mandates, Ng said.

Increased use of PMO for biodiesel production in Indonesia would bring down the stockpiles, pushing up prices, she added.

Ng said PMO prices were likely to average MR2,450/mt in 2016 despite many analysts forecasting highs of around MR3,000/mt.
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