Escalating tensions between Israel and Iran coincided with Washington’s announcement of tougher biofuel blending requirements, creating a perfect storm for commodity traders betting on higher prices.
Soyabean oil futures have climbed 11% since Thursday, marking the highest level since October 2023. Meanwhile, palm oil has reversed earlier losses to gain over 6% this week, after suffering from oversupply concerns earlier in the year.
The surge comes as Brent crude has jumped approximately 8% following Israel’s aerial bombardment of Iranian nuclear and military installations, raising concerns about potential supply disruptions in a region that handles roughly one-sixth of global oil shipments through the Strait of Hormuz.
The market momentum gained additional fuel from the US Environmental Protection Agency’s proposal to mandate a record 24.02 billion gallons of biofuel blending next year—an 8% increase from current levels.
Particularly significant was the agency’s decision to raise biomass-based diesel targets by 67% to 5.61 billion gallons, substantially higher than industry expectations of 5.25 billion gallons.
Charles Hart, senior commodities analyst at Rabobank, described the EPA announcement to the Financial Times as “exceptionally bullish for US soyabean oil markets.” The agency simultaneously halved compliance credits for foreign feedstocks, including Canadian rapeseed and Chinese used cooking oil, providing domestic producers with a competitive advantage.
American soyabean growers have endured years of trade disruption stemming from tariff disputes with China and face continued pressure from declining global prices and elevated input costs.
The timing appears politically astute as the Trump administration seeks to balance competing interests between fossil fuel companies and agricultural constituencies in key swing states ahead of the upcoming election cycle.
Market fundamentals support the current price trajectory. US soyabean oil inventories fell to 1.37 billion pounds at the end of May, representing a 20% year-on-year decline and the lowest May reading since 2004, according to the National Oilseed Processors Association.
Palm oil prices have tracked soyabean oil higher, reflecting the close correlation between the two commodities, particularly in price-sensitive markets such as India where consumers frequently substitute between oils based on relative costs.
Indian refiners have begun responding to the volatility, with industry sources reporting the cancellation of 65,000 metric tonnes of crude palm oil orders scheduled for delivery between July and September. The cancellations followed Malaysian palm oil futures gaining over 6% in recent days.
Simultaneously, Indian authorities have launched nationwide inspections of oil processing facilities to ensure recent import duty cuts—which reduced basic customs duties from 20% to 10% on key crude oils—are being passed through to consumers.
Market participants are bracing for continued volatility as geopolitical risks persist. Iran, the third-largest producer among the Organization of the Petroleum Exporting Countries’ (OPEC) with a daily output of 3.3 million barrels, has threatened to close the Strait of Hormuz, through which 18-21 million barrels of oil and petroleum products transit daily.
