Malaysian palm oil futures (FCPO) failed to maintain the rally from the previous session and were beaten by almost four percent for the eigh session, due to increased inventories and production and weak demand from major buyers.
On Friday, FCPO fell 3.4 percent to 1,975 compared to last Friday's closing price of 2,042, a total of 67 points.
The average trading volume rose from 35,590 contracts to 48,378 contracts from the previous week, a total jump of 35.93 percent.
However, there was a decline of 0.91 percent to 248,898 contracts from 246,661 contracts in the average daily open interest from the previous week.
The latest AmSpec report shows a two percent increase in export data from November 1 to 15, a total of 549,488 MT, of 538,607 MT sent during October 1 to 15.
Societe Generale de Surveillance (SGS) reported a one percent surge in exports of Malaysian palm oil products from November 1 to 15 to 557,781 tons from 522,076 tons sent during October 1 to 15.
The release of official October data from the Malaysian Palm Oil Board (MPOB) on Monday was below expectations, with stock increasing 7.6 percent to 2.72 million tons, lower than the Reuters poll 14.1 percent to 2.9 million tons while production jumped six percent to 1.96 million tons which was slightly below the estimate of 5.7 percent to 1.96 million tons.
Palm oil production fell three percent to 1.57 million tons, down from previous expectations of eight percent growth.
Demand will also not increase from major buyers such as Europe and China because palm oil freezes in the winter.
In addition, India's palm oil imports are also expected to remain weak due to competing liquidity crises and competing oil supplies weighing on prices.
Thus, bears still control palm oil prices and market consensus for palm oil is expected to last until January 2019.
With that, investors are likely to expect Malaysian palm oil to trade lower in the coming months.
In addition, industry analyst Dorab Mistry at an industry conference held in China commented that Malaysian palm oil inventories at the end of December are expected to increase to 3.5 million tons, a revision from the previous estimate of three million and 3.3 million tons.
He also commented equally on inventory levels in Indonesia, which is likely to increase in the coming months.
Oil prices moved higher on Friday, recovering for the third consecutive session of sharp weekly losses, driven by hopes for production cuts from the Organization of the Petroleum Exporting Countries (OPEC) with Russia and other allies.
Even with three consecutive gains, both West Texas Intermediate (WTI) and Brent Crude Oil were still in losses of almost five and four percent, respectively.
Palm oil prices are affected by the movement of other vegetable oils as they compete to share in the global vegetable oil market.
Spot ringgit depreciated 0.32 percent to 4.1920 against the US dollar in the coming week, compared with 4.1785 on Friday.
From the one hour chart, the price of Malaysian palm oil remains in bearish sentiment and is likely to remain bearish for the coming months.
There is no sign of a rebound in the near term because the price is still below the death-cross EMA25 and EMA50.
The RSI also shows that the price is in a bearish zone and can go to the oversold zone which is below 10.
Thus, direct support is set at 1.950.
In the coming week, FCPO may continue to trade lower. If FCPO fails to break below the first support level, this can be traded towards the first resistance level.
The resistance line will be positioned at 2,033 and 2,000, while the support line will be at 1,950 and 1,925. These levels will be observed in the next week.
The main fundamental news this week
The AmSpec and SGS reports will be released on November 20, 2018 (Tuesday).
Oriental Pacific Futures (OPF) is a Trading Participant and Clearing Participants from Bursa Malaysia Derivatives. You can contact us at www.opf.com.my. Disclaimer: This article is written only for general information. Writers, publishers and OPF will not be responsible for trade damage or losses caused by the use of this article.