19/07/2010 (Bloomberg) - Palm oil advanced for an eighth day, erasing an earlier drop, as crude oil pared losses and restored the appeal of the tropical oil as a biodiesel feedstock.

October-delivery futures reversed a decline in the last few minutes of trade, gaining 0.2 percent to 2,454 ringgit ($760) a metric ton on the Malaysia Derivatives Exchange. The most-active contract lost as much as 0.8 percent earlier.

August-delivery crude was little changed at $75.95 a barrel at 6:05 p.m. after falling as much as 0.7 percent earlier on the New York Mercantile Exchange. Oil dropped for a fourth day after the Thomson Reuters/University of Michigan preliminary consumer sentiment index for July fell to 66.5 from 76 in June, the lowest level since August.

“The markets are still positive,” Nirgunan Tiruchelvam, an analyst at Royal Bank of Scotland Asia Securities (Singapore) Pte., said today. Palm oil is supported when crude trades above $70 a barrel, he said.

The intraday decline in crude oil raised “concerns about palm oil’s biodiesel appeal,” said Badruddin Khan, assistant vice president for research at Angel Commodities Ltd. in Mumbai. “There’s also a bit of profit-taking after the rally, which may not be fully backed by fundamentals.”

The commodity had its first weekly gain in four last week and reached a six-week high on speculation that demand for the most-consumed vegetable oil will climb as Asian nations approach the festival season. China, India, Pakistan and Indonesia mark their important festivals in the quarter ending September, with communal meals stoking edible oils consumption.

‘Inventory Overhang’
Still, the gain in palm oil production in Indonesia, the largest producer, may exceed the growth in demand, pressuring prices in the coming months, Khan said. Output in Malaysia, the second-largest, climbed 2.5 percent to 1.42 million tons in June, the nation’s Palm Oil Board said last week.

“Production is going to be better everywhere and there’s an overhang of inventory,” Khan said.

Palm oil could decline as low as 2,200 ringgit, unless it exceeds 2,500 ringgit with a “strong breakout momentum,” a RHB Research Institute Sdn. said in a note, citing technical charts.

December-delivery soybean oil in Chicago was little changed at 39.03 cents a pound at 5:59 p.m. while soybeans for November delivery, which had slumped as much as 1.3 percent to $9.7225 a bushel on the Chicago Board of Trade, was at $9.8275 at 6:03 p.m.

CME Group Inc.’s September-delivery palm oil contract, which is pegged to the Malaysian benchmark price, rose 8 percent to $763.75 a ton on July 15, the most since the contract started trading in May.

On the Dalian Commodity Exchange, January-delivery palm oil closed little changed at 6,536 yuan ($964) a ton while soybean oil fell 0.2 percent to 7,562 yuan a ton.