10/04/2015 (Reuters) - Thailand plans to double the volume of palm oil blended into diesel fuel from mid-April in an attempt to soak up oversupply and shore up domestic palm oil prices, the energy ministry said on Thursday.

Thailand is the world's third-largest palm oil producer, although its output is a fraction of that of top producers Indonesia and Malaysia.

The move to boost the proportion of palm oil to 7 percent from 3.5 percent from April 16 reverses a cut in January, when the government reduced the blending proportion as a drought hurt output and the country's stocks dwindled.

After the change, biodiesel consumption should rise to around 3.7 million litres a day from 2.2 million litres, Witoon Kulchroenwirat, director-general of the ministry's Energy Business Department, said in a statement.

Thailand's total diesel demand stood at around 60 million litres a day (around 378,000 barrels per day) in March.

The move comes as domestic palm oil supply increases, putting pressure on prices, the ministry said.

Palm oil stocks stood at around 170,000 tonnes in March, well above the government's targeted storage levels of 135,000 tonnes.

Stocks slid to around 110,000 tonnes in January.