Frequent fluctuations will be the two words to describe domestic oil market recently. The most active soybean oil contract Y2001 on the Dalian Commodity Exchange hovers at the key 6,000 yuan/tonne, and the spot market is also moving in the wake of futures to stay in an unstable trend. On Sept. 26, GB Grade I soybean oil is mainly priced at 5,930-6,160 yuan/tonne and RBD palm olein is mainly priced at 4,640-4,810 yuan/tonne in domestic coastal regions. This can be mainly attributed to following factors:

With the propelling of US-China trade talks and their easing relations, China on Monday bought 10 boatload of US soybeans for shipment from October to December, or a total about 600,000 tonnes, according to people familiar with the situation. Meanwhile, sources said that China awarded new waivers of 27 cargoes to importers of U.S. soybeans free from tariffs, of which at least 7 cargoes to one state-owned firm and 4 cargoes to another. In addition, a report said that privately-run companies bought at least 15 cargoes, or about 900,000-1,200,000 tonnes. Among those purchases, most are US Pacific Northwest cargoes with shipment in October and November and CNF China +145X (X=Nov). China and the United States both described trade talks last week as constructive, and would carry out high-level talks in early October as scheduled. 

Crushers still can get margins from South American soybeans. On Sept. 25, the gross crushing margin of Brazilian soybeans in October on the DCE is 186 yuan/tonne and spot crushing margin is 235 yuan/tonne; the gross crushing margin of Argentine soybeans in October on the DCE is 161 yuan/tonne and spot crushing margin is 211 yuan/tonne. For those US soybean cargoes free from additional tariffs, the gross crushing margins of US Gulf cargoes is 200-220 yuan/tonne, and US PNW is 290-300 yuan/tonne. In this case, domestic mills will keep their operation rates at the high level. For the past weeks, soybean crush has been stubbornly high, and even to a fresh high of 1.90 mln tonnes within this year in Week 35. 

China’s soybean imports were 9.4807 mln tonnes in August, up 839,400 tonnes by 9.71% from 8.6413 mln tonnes in July, and up 695,000 tonnes by 8.77% from 7.923 mln tonnes in August last year. For the first six months in 2019, soybean imports were 7.3763, 4.4561, 4.9163, 7.64, 7.2918, and 6.5121 mln tonnes, respectively. 

And according to Cofeed, imported soybean is predicted to be 123 cargoes with 8.022 mln tonnes for September, 7.50 mln tonnes for October, 7.90 mln tonnes for November and 7.10 mln tonnes for December. Thus it can be seen that July and August are the highest. 

Data release by MPOA showed, the production of crude palm oil in Malaysia posted a month-on-month increase of 6.17% from September 1st to 20th, of which Peninsular Malaysia increased by 1.19% and East Malaysia increased by 17.10%. This is different from the report by SPPOMA, in which it said the production from September 1st to 20th was 1.79% below that in the corresponding period in August. And according to the export report by the shipping agency AMSPEC, the exports from September 1st to 25th declined by 19.7% month on month. The weak export demand has built up pressure on BMD palm oil. 

And in China, as of this Tuesday, the inventory of edible palm oil totaled 565,100 tonnes at domestic ports, and its average monthly imports are predicted to be over 500,000 tonnes in coming two months. Palm oil was traded with only 300 tonnes on Monday, 1,400 tonnes on Tuesday and 1,000 tonnes on Wednesday, which could be attributed to the end of festival demand and cooler weather. In the meantime, the inventory of soybean oil is also increasing as soybean crush remains at a high level. As of September 26, the commercial inventory of soybean oil amounted to 1.35 mln tonnes, up 1,950 tonnes by 0.14% from 1.34805 mln tonnes last week, up 25,000 tonnes by 1.89% from 1.325 mln tonnes from the same period last month, yet down 342,300 tonnes by 20.23% from 1.6923 mln tonnes of the corresponding period last year. The five year average is 1.3272 mln tonnes. 

There is still a myriad of bearish news in oil market and funds have also been pulled out, so the oil market is weighed down to fall into the correction territory. But the most active contract on the DCE has rebounded back to over 6,000 yuan/tonne after hitting the low level of 5,976 yuan/tonne, so there must be certain support in the market. 

Fig. Soybean oil on the Dalian Commodity Exchange

Buyers are replenishing bulk oils ahead of the National Day holidays, so downstream dealers have lit up the market again after futures fell in row to low levels. Soybean oil traded 30,450 tonnes on Monday, 27,060 tonnes on Tuesday and 34,800 tonnes on Wednesday, with the average price ranging from 6,048 to 6,093 yuan/tonne. The Y2001 contract also closed at 6,014 yuan/tonnes on Wednesday. 

Furthermore, the output of soybean oil may fall as most mills will halt production during the holidays, especially in Shandong and North China, and mills in Rizhao, Shandong have already limited their production due to heavy pollution. And the delivery month of most contracts sign on forward basis is October, which will accordingly help digest the inventory. 

The oil market is now in a hybrid of the bull and the bear, and it will probably extend fluctuations with slight declines overall. But the US-China trade talks will still count a lot, so it is not suggested to simply go short.