JANUARY 20 — One commodity market analysis presented a compelling narrative about the direct relationship between global edible oil prices and energy markets, particularly crude oil. While this connection exists, the analysis may have failed to account for the multifaceted nature of edible oil pricing dynamics.
Crude oil prices represent just one factor in a complex web of determinants that include supply conditions, weather patterns, trade policies, and shifting consumer preferences. The relationship between energy and edible oil markets primarily revolves around biofuel production and production costs.
When crude oil prices rise, vegetable oils become more competitive as feedstocks for biodiesel, potentially increasing demand for edible oils and driving prices upward. Conversely, lower crude prices diminish the economic incentive for biofuel production, potentially reducing demand for vegetable oils.
Additionally, energy costs factor significantly into edible oil production through farm machinery operation, processing, transportation, and packaging. However, other factors — including improved supply conditions, production prospects in major exporting countries, and persistent concerns about trade tensions — have been equally influential in recent price movements.
Global edible oil supply has demonstrated remarkable resilience and growth in recent years. According to World Bank data, the global edible oil supply is expected to rise by 5 per cent in the 2025–26 crop year, marking the fourth consecutive year of expansion that outpaces the long-term trend.
This growth is largely driven by record-high soybean production, which is boosting soybean oil output significantly. The diversification of supply across different oil types creates a complex price dynamic that cannot be explained solely by energy market movements.
While soybean oil production surges, the combined supply of other major oils — including sunflower seed, rapeseed, and coconut oil — declined in 2024–25 and is expected to recover only partially in 2025–26. This growing reliance on soybean oil introduces specific price vulnerabilities unrelated to energy markets, including weather patterns affecting soybean crops and disease outbreaks impacting alternative oilseeds.
Trade tensions have also had a significant impact on edible oil markets, at times completely decoupling them from energy price trends. The World Bank notes that “persistent concerns about the impact of trade tensions on global demand have added further downward pressure on prices”.
These tensions create artificial barriers to efficient market functioning that can outweigh the influence of energy markets. While the connection between crude oil and edible oil through biofuel channels is valid, it is important to recognise that government policies — rather than pure market economics — often drive biofuel demand.
Mandates for blending renewable fuels into transportation fuel supplies create a baseline demand for vegetable oils that may persist even when crude oil prices fall. These policies introduce a structural demand component that weakens the direct price correlation between energy and edible oils. The World Bank’s outlook further notes that policy decisions can sometimes override market signals that would otherwise produce a stronger energy–edible oil price relationship.
Global edible oil market dynamics also vary significantly by region. The Asia-Pacific region dominates the edible oil market, with China and India driving particularly strong demand growth.
These markets respond to local economic conditions, cultural preferences, and domestic agricultural policies that may amplify or dampen the influence of global energy prices. Looking ahead, supply expansion and diversified sources are likely to continue exerting greater influence on edible oil prices than energy market movements.
The World Bank projects that its food price index will decline by 7 per cent in 2025 and edge slightly lower in 2026. These broad-based declines across agricultural commodities point to sector-wide trends that transcend energy market influences.
Global grain supplies are also set to hit record levels in 2025–26, with spillover effects on edible oil markets, particularly as oilseed production benefits from similar favourable conditions. These agricultural supply factors represent a more direct influence on edible oil prices than the indirect effects of energy costs.
One critical area where some analyses may fall short is in assessing the impact of trade policies on edible oil markets. The World Bank notes that trade tensions have created downward pressure on prices and represent a wild card capable of disrupting market dynamics regardless of energy prices.
The potential for new export restrictions or import tariffs creates policy-driven price signals that can overwhelm traditional market fundamentals. Extreme weather events represent another factor that can decouple edible oil prices from energy markets.
The US Department of Agriculture notes that “unfavourable growing conditions in 2024, including extreme weather in parts of California and Florida, contributed to notable increases in grower prices for key crops”. These climate-related disruptions to agricultural production create price spikes driven less by energy markets and more by increasing weather volatility associated with climate change.
* The author is affiliated with the Tan Sri Omar Centre for STI Policy Studies at UCSI University and is an Adjunct Professor at the Ungku Aziz Centre for Development Studies, Universiti Malaya. He can be reached at [email protected].
** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
