11/07/2011 (Bloomberg) - Palm oil climbed for a second day to the highest level in a week as crude advanced, lifting the appeal of vegetable oils as a biofuel feedstock, and on gains in rival soybean oil.

The contract for September delivery climbed as much as 1.8 percent to 3,110 ringgit ($1,039) per metric ton on the Malaysia Derivatives Exchange, the highest level since June 30. The most- active contract was at 3,080 ringgit at 5:20 p.m. in Kuala Lumpur. Futures are up 1.5 percent this week, heading for the first weekly gain in six.

Palm oil is getting “support from firmer crude oil and soybean oil last night,” Chandran Sinnasamy, head of trading at LT International Futures (M) Sdn., said by phone from Kuala Lumpur. “The market is correcting upwards, from the sharp fall in the last five weeks.”

Crude oil for August delivery gained as much as 0.3 percent to $98.97 a barrel in electronic trading on the New York Mercantile Exchange and was last at $98.15. The contract yesterday climbed 2.1 percent to $98.67, the highest since June 14. Prices are 3.4 percent higher this week.

Palm oil declined 11.7 percent in the past five weeks through July 1 on concern that increased production may expand stockpiles in Malaysia, the second-largest grower. Inventories climbed 5.8 percent to 2.03 million tons in June, while output gained 2.3 percent to 1.78 million tons, a Bloomberg survey of three analysts and two plantation companies showed this week. The Malaysian Palm Oil Board will release output, inventory and export data for June on July 11.

There may be some “short covering ahead of next week’s data, everyone’s expecting it to be bearish,” said Chandran. Short-covering refers to investors reversing bets on declining prices.

‘Soy Complex’
Soybean oil for delivery in December climbed as much as 0.2 percent to 57.76 cents a pound, extending yesterday’s 2.2 percent gain. Soybean futures for November delivery advanced 1.5 percent on the Chicago Board of Trade yesterday, the biggest gain since June 2. The oilseed rose as much as 0.3 percent today, before trading at $13.38.

“Soybean oil led the gains in the soy complex due to firm cash markets and expectations for increased demand for biofuel,” Gnanasekar Thiagarajan, a director at Mumbai-based Commtrendz Risk Management Services Pvt., said in a report today. “Some weather forecasts are calling for warmer and drier weather in the Midwest.”

Temperatures will be above normal in the next seven days in the Midwest and the next two weeks across the southern U.S., increasing stress on crops, according to T-Storm Weather LLC in Chicago. About 39 percent of the growing region for soybeans and corn got less rain than usual in the past two weeks, leaving soil with moisture deficits, the forecaster said.

January-delivery palm oil on the Dalian Commodity Exchange climbed as much as 1.6 percent to 8,980 yuan ($1,389) a ton. Soybean oil for delivery in the same month gained as much as 1.2 percent to 10,234 yuan a ton.