Prices of key edible oils have spiked sharply in recent days, driven by a combination of surging energy costs following escalating tensions between Israel and Iran, and a major U.S. policy shift to increase the use of biofuels. As reported by the Financial Times, soyabean oil and palm oil markets have reacted swiftly to the geopolitical and regulatory developments, with traders anticipating sustained demand for alternative energy inputs.
Soyabean oil prices have soared 11% since Thursday, climbing to over 55 cents per pound — their highest level since October 2023. Palm oil, which had been in decline due to oversupply earlier this year, has gained more than 6% to nearly 4,100 ringgit per ton this week.
Analysts say the trigger for the rally was the recent flare-up in the Middle East. Last week, Israel launched air strikes on Iranian nuclear and military sites, prompting an 8% rise in Brent crude oil prices and intensifying fears of wider regional instability.
“The major factor for this jump is due to energy prices,” said Darren Lim, commodities strategist at Singapore-based brokerage Phillip Nova. “Higher energy prices push up palm oil production costs and also the potential demand for biofuels, because they act as an alternative energy source.”
Adding fuel to the rally, the U.S. Environmental Protection Agency (EPA) proposed a significant increase in biofuel blending mandates. Under the plan, the volume of biofuels to be mixed into U.S. diesel and petrol would rise by 8% to a record 24.02 billion gallons in 2026. Notably, the target for biomass-based diesel — often made from soyabean oil and used cooking oil — would jump 67% to 5.61 billion gallons, exceeding industry expectations.
The EPA also proposed halving compliance credits for foreign feedstocks, such as Canadian rapeseed and Chinese used cooking oil. This policy shift gives a competitive edge to U.S. producers and supports domestic soyabean oil demand at a time when American farmers are grappling with low export demand and high input costs.
“This is a very bullish announcement for U.S. soyabean oil,” said Charles Hart, senior commodities analyst at Rabobank. He noted that U.S. soyabean oil inventories fell to 1.37 billion pounds at the end of May — the lowest May level in over two decades. “You have increased domestic demand from the mandate, support from rising crude prices, and tighter supply.”
Speculators, who had cut their net long positions in soyabean oil futures prior to the EPA announcement, rushed back into the market afterward, amplifying the price surge, Hart added.
Palm oil — the world’s cheapest major edible oil — typically tracks soyabean oil prices closely, especially in major import markets like India, where buyers shift between the two based on pricing. Indian palm oil demand has also been boosted by recent import tax cuts.
Beyond the short-term market dynamics, analysts see a broader strategic dimension to the developments. The push for biofuels is tied not only to decarbonization goals but also to energy security concerns — particularly in light of geopolitical volatility and trade tensions.
“The development of biofuel sectors — not just in the U.S. but globally — has been tied to energy security,” Hart explained. “It also provides some insulation against exogenous shocks in the global crude market.”
The Trump administration’s proposal is also being interpreted as a political gesture toward U.S. farmers, many of whom were hurt by trade disputes during Trump’s first term. His approach has long tried to balance the competing interests of fossil fuel producers and biofuel advocates, both influential in key electoral states like Iowa.
“This is a measure of support for the U.S. soyabean sector at a time of relative uncertainty for exports, given the current tensions in the U.S.-China trading relationship,” said Hart.
Public hearings on the EPA’s proposal are set for July 8, but a final ruling may take months. In the meantime, markets are bracing for continued volatility, particularly as developments in the Middle East remain fluid.
“It depends on the magnitude and the duration of how long this Middle East crisis will last,” said Lim. “If the severity remains the same but drags on, prices may slowly come off. But if it escalates, you’ll see a fast reaction.”
