Crude oil and Palm oil

Indonesia blends palm biodiesel into diesel under a mandate funded by export levies, which moved from B40 to B50 from July 2026, so the gap between palm oil and gasoil prices, the POGO spread, decides how costly the mandate is; high oil prices make palm biodiesel competitive and support palm prices.

Crude oil (energy) and Palm oil (commodity): 4 relationships.

How they are linked

1. Indonesia's biodiesel mandate

Physical flow · Strong · Palm oil → biodiesel replacing diesel

Indonesia, the largest palm oil producer, requires diesel to be blended with palm-based biodiesel, which turns part of its palm output into a diesel substitute instead of exports.

• about 14.2 million kl palm-based biodiesel used in Indonesia, 2025
• about 17.6 million kl possible 2026 biodiesel demand with B50 from July, up from a 15.65 million kl allocation
• 20.1 million kl estimated annual need under full B50

Indonesia launched B50 on 1 July 2026, after B40 in the first half of the year; earlier in 2026 it had planned to keep B40 until the end of the year. Each step up the blend takes more palm oil off the export market, which tightens supply for importers such as India.

Sources: Petromindo; The Star (Reuters); The Star (Reuters)

2. POGO spread

Cost and price · Strong · Gasoil price versus palm oil price

Biodiesel competes with fossil diesel, so when gasoil is dear relative to palm oil, blending is cheaper and discretionary demand rises; when palm is dearer, the subsidy needed to keep the mandate rises.

• 12.5% Indonesian crude palm oil export levy from March 2026, up from 10%
• 47 to 32 trillion rupiah expected fall in Indonesia's 2026 biodiesel subsidy as crude rose

In March 2026 rising crude and gasoil prices, linked to disruption in the Strait of Hormuz after the Middle East conflict began, improved biodiesel competitiveness and gave a favourable POGO spread; by June the higher crude price was expected to cut Indonesia's 2026 biodiesel subsidy from 47 trillion to 32 trillion rupiah. In late 2024, by contrast, a wide spread with palm above gasoil was expected to put more pressure on subsidies.

Sources: Petromindo; Malaysian Palm Oil Council; Argus Media; The Star (Reuters)

3. Export levies fund the blend

Policy · Strong · Levy on palm exports → biodiesel subsidy

Indonesia pays the gap between biodiesel and diesel costs from palm oil export levies, so lower oil prices force higher levies, which raise the cost of palm oil abroad.

• 2.5 points rise in palm product export levies from March 2026 to fund biodiesel

This ties oil prices to palm export prices through policy as well as markets: when crude falls, the subsidy gap widens and the government raises levies or slows the blend. Importers therefore face policy risk from Jakarta as well as crop and oil risk.

Sources: The Star (Reuters); Argus Media; The Star (Reuters)

4. Price link: energy price link

Cost and price · Strong · Both ways

Higher crude prices make palm biodiesel more competitive with diesel and raise fertiliser and freight costs, so the two prices tend to rise together.

• 0.44 monthly change correlation
• 0.60 12-month change correlation
• 0.50 fitted elasticity

Yearly moves correlate at 0.60. The link is a common driver plus the biodiesel channel, and it weakens when weather or El Nino cuts palm yields, or when mandate changes move palm demand on their own.

Sources: Material Insights (World Bank, FRED, IMF data)

For investors

Key learnings

1. Indonesia's biodiesel mandate used about 14.2 million kl in 2025 and moved to B50 from July 2026, which needs about 20.1 million kl a year at full rate, making crude oil a direct driver of palm demand.
2. The POGO spread decides the subsidy cost and the pace of higher blends, so it is the key indicator linking oil and palm.
3. Palm prices move with crude, yearly correlation 0.60, but Indonesian levy and mandate decisions can override the market link.

What to track

• POGO spread (palm oil minus gasoil): A narrow or negative spread favours more blending and supports palm prices (Daily · Bursa Malaysia and gasoil futures)
• Indonesia biodiesel allocation and B50 coverage: Size of palm oil taken off the export market (As announced · Indonesian energy ministry (ESDM))
• Indonesian palm export levy rate: Cost of palm to importers and funding of the mandate (Monthly · Indonesian trade ministry)

For policymakers

Key learnings

1. India imported 7.58 Mt of palm oil in 2024-25, about 47% of its vegetable oil imports, so Indonesian biodiesel policy directly affects Indian food oil prices.
2. High crude prices hurt India twice: a larger oil import bill and dearer palm oil as Indonesia diverts more to biodiesel.
3. Diversifying edible oil imports, as the shift to soybean oil in 2024-25 showed, reduces exposure to palm biodiesel policy.

What to track

• India's palm oil imports and share of edible oil imports: Exposure to palm price swings (Monthly · Solvent Extractors' Association)
• Indonesian levy and mandate announcements: Early warning of tighter palm export supply (As announced · ESDM and trade ministry)

India

India imported 7.58 Mt of palm oil in the 2024-25 oil year, down from 9.02 Mt and about 47% of vegetable oil imports, with Indonesia the top crude palm oil supplier at 2.75 Mt.

Sources

1. Indonesia delays B50 biodiesel mandate, maintains B40 and raises palm oil export levy, Petromindo (2026)
2. Indonesia mulls palm oil export levy hike to support biodiesel mandate, The Star (Reuters) (2026)
3. CPO prices to stay above RM4,450 amid rising energy prices and Middle East uncertainty, Malaysian Palm Oil Council (2026)
4. Biodiesel to drive 2025 palm oil prices: IPOC, Argus Media (2024)
5. Indonesia targets 50pc biodiesel blend in 2026, Argus Media (2026)
6. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)
7. India summarizes its vegetable oil imports for the MY 2024/25, UkrAgroConsult (Solvent Extractors' Association data) (2025)
8. Indonesia on track to launch B50 biodiesel programme on July 1, minister says, The Star (Reuters) (2026)