08/07/2011 (Bloomberg) - Palm oil advanced for the first time in three days as gains in crude oil lifted the appeal of the vegetable oil as a biofuel feedstock.

The contract for September delivery climbed 0.9 percent to 3,055 ringgit ($1,014) per metric ton on the Malaysia Derivatives Exchange, the highest close in a week. Futures declined 0.4 percent yesterday and 0.3 percent on June 5.

“With the higher crude oil price, I think there’s more chance for the market to move higher,” said Ryan Long, vice president of futures & options at OSK Investment Bank Bhd.

Oil rose from a two-day low in New York as investors bet that shrinking crude stockpiles and signs of economic recovery in the U.S. indicated fuel demand is strengthening in the world’s biggest crude consumer. An Energy Department report today may show U.S. supplies slid 2.5 million barrels, according to a Bloomberg News survey of analysts.

Crude for August delivery gained as much as $1.05 to $97.70 a barrel in electronic trading on the New York Mercantile Exchange before trading at $97.32 a barrel. Prices are 31 percent higher in the past year.

“Short-covering can also be taken in to consideration because the prices for palm oil have fallen drastically in the near past,” Vimala Reddy, an analyst at Karvy Comtrade Ltd., said from the Indian city of Hyderabad. Short-covering refers to investors reversing bets on declining prices.

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Palm oil declined 11.7 percent in the past five weeks through July 1 on concerns over increasing supplies and expanding stockpiles in Malaysia, the second-largest grower. The Malaysian Palm Oil Board is scheduled to release output, inventory and export data for June on July 11.

“While this may weigh on palm oil prices in the short term, low global availability of alternative vegetable oil stocks are forecast to increase palm oil demand in the medium term,” Rabobank Group wrote in a report e-mailed today.

Concern about weather conditions in the U.S. is pushing up prices of soybeans, crushed to make a rival oil, Reddy said. Drier weather could hurt soybean crops, she said.

Goldman Sachs Group Inc. maintained its recommendation to buy November-delivery soybeans. “We see soybeans as likely to remain in a deficit in 2011-2012 on strong demand and acreage loss to corn,” according to a report e-mailed today. That trade was first recommended by Goldman in November, according to the report.

November-delivery soybeans increased as much as 0.4 percent to $13.24 a bushel on the Chicago Board of Trade, while soybean oil for delivery in December gained as much as 0.5 percent to 56.69 cents a pound.

January-delivery palm oil on the Dalian Commodity Exchange climbed 0.2 percent to close at 8,842 yuan ($1,367) a ton. Soybean oil for delivery in the same month gained 0.8 percent to close at 10,114 yuan a ton.