[Leisurely Oil Forecast] Bullish Factors Concentrated Trading & Macro Expectations Deteriorate, Oils Surge Then Retreat

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Source: CFC Commodity Strategy Research

Author | CITIC Construction Investment Futures Research & Development Department, Shi Lihong

Report Completion Date | March 22, 2026

Middle East Conflict Sparks Sharp Rise in Crude Oil Prices, Significantly Improving Biodiesel Commercial Blending Profits, Leading to a Major Upward Movement in Oils, Led by Palm Oil, Over the Past Two Weeks. Moreover, Last Weekend, Indonesian President Instructed the Cabinet that Strategic Resources Like Palm Oil Should Prioritize Domestic Demand Before Export, Causing Market Concerns Over Export Restrictions, Which Pushed Palm Oil Futures Above 10,000 on Monday. However, U.S. Soybean Oil Fell Significantly Due to Delays in Biodiesel Blending Policy Decisions, and Indonesia Did Not Take Further Export Restriction Actions. Amid Rising Inflation Expectations and a Macro Environment of Tightening Global Monetary Policies, Oilseeds Prices Fell Sharply in the Second Half of the Week from High Levels, Showing Signs of a Top.

1. Growth in Biodiesel Blending Faces Bottlenecks, and Policy Adjustments Are Slow

With the Strait of Hormuz Already Effectively Blocked and Middle Eastern Conflicts Spreading from Military Targets to Core Energy Facilities, the Risk of Prolonged Supply Disruptions in Middle Eastern Energy Increases, Supporting Further Oil Price Gains This Week. However, As Oilseed Prices Rise Significantly, Market Awareness of Bottlenecks in Commercial Blending Growth Grows, Closely Related to Idle Capacity of Biodiesel, Raw Material Supply, and the Duration of Profitable Blending Windows. Although Current Oil Prices Still Support Good Biodiesel Blending Margins and High Oil Prices Are Expected to Persist Under the Current Middle Eastern Situation, Limited Idle Capacity and Methanol Supply Issues for Biodiesel Raw Materials Constrain Growth in Biodiesel Production and Commercial Blending.

From June to December 2022, the Profit Window for Biodiesel Blending Also Opened, Driven by Large-Scale Production Increases in Indonesia and the U.S., Boosting Global Biodiesel Output by Over 3 Million Tons. However, We Expect the Demand Increase for Oils from Commercial Blending This Year to Be Less Significant. Years of Policy-Driven Blending in the U.S. and Indonesia Have Reduced Idle Capacity and Constrained Growth in Biodiesel Blending. In 2022, Indonesia Implemented B30, with a Capacity Utilization Rate of About 60%, but the Promotion of B40 by 2026 Will Raise Utilization to Over 75%. The U.S. Has Also Expanded Biodiesel Capacity Significantly in Recent Years, and If the Expected 5.5 Billion Gallons of Biodiesel Blending Obligation and 70% Exemption Are Fulfilled, Capacity Utilization Could Rise to Over 85%. Additionally, the Strait of Hormuz Blockade Affects Southeast Asian Methanol Supply, Impacting Raw Material Supply for First-Generation Biodiesel and Possibly Limiting Production.

Furthermore, Although Improved Economics of Biodiesel Have Led to Some Policy Relaxation, Policy Implementation Requires Sustained High Oil Prices. Currently, Only Thailand Has Increased Domestic Biodiesel Blending from 5% to 7%, While Most Countries Remain Hesitant. Due to Internal Disputes, Brazil’s CNPE Delayed the B16 Discussion Scheduled for March 19, and the New Date Is Unknown. The U.S. Is Also Expected Not to Announce Its 2026-2027 Biofuel Blending Policy Before March 27, Possibly Delaying to April. Indonesia Has Not Even Completed Road Testing for B50, Let Alone Meet Actual Conditions. Under These Circumstances, It Is Normal for Market Bullish Sentiment to Diminish After Recent Sharp Gains.

The Seasonal Increase in Palm Oil Production Has Begun, and Ramadan Demand Is Approaching Its End. B50 Road Testing Is Not Yet Complete, and Indonesia Lacks Opportunities to Tighten Palm Oil Exports. Policy Implementation Falling Short of Expectations Caused Palm Oil Futures to Retreat After Surging Past 10,000. The U.S. Soybean Oil Market Has Priced in Expectations of Favorable Biodiesel Policies at 65-70 Cents per Pound. Based on Our Real-Time Profit Calculations for U.S. Soybean Oil-Based Biodiesel, Current Diesel and D4 RINs Prices Support a Break-Even Point of About 72-73 Cents per Pound. To Encourage Biodiesel Production and Blending, Maintaining a Certain Level of Positive Margins Is Necessary. Around 70 Cents Will Be a Key Reference for the Upper Limit of Soybean Oil Prices, but Market Participants Should Watch Out for the Potential Phase-Out of Policy Benefits Once Biodiesel Blending Policies Are Implemented.

2. Oil Price Upside Risks Remain, and Monetary Policy Is Turning Hawkish

Besides Bottlenecks in Biodiesel Growth and Slow Policy Adjustments, Leading to Weaker Bullish Sentiment for Oils, the Recent Decline in Oilseed Prices Also Reflects Deteriorating Macro Sentiment.

The Third Week of the Conflict Continues with Ongoing Military Actions by the U.S., Israel, and Iran. The Intensity of the Conflict Has Not Diminished, and Its Scope Has Expanded to Core Energy Facilities. On March 18, Israel Bombed a Natural Gas Field in Southern Pars. In Retaliation, Iran’s Revolutionary Guards Attacked Oil Facilities in Several Middle Eastern Countries and the U.S., Risking Escalation. Although Both the U.S. and Israel Promised Not to Attack Energy Infrastructure Again, the Damage Already Done Will Take Time to Repair. Unlike the Strait of Hormuz Blockade, Damage to Energy Facilities Takes Longer to Fix, Extending Market Expectations of Prolonged Disruptions and Sustained High Oil Prices. Rising Inflation Expectations Are Also Evident in Recent Central Bank Policies.

At This Week’s Monetary Policy Meetings, the Fed, ECB, and Bank of Japan All Maintained Current Rates, Citing the Need to Wait and See. However, Their Policy Stances Have Shifted Toward Hawkishness, Raising the Bar for Future Rate Cuts. The Fed’s Dot Plot Shows Only One Rate Cut Expected This Year, and Powell Explicitly Said No Rate Cuts Unless Inflation Continues to Improve. Some FOMC Members Are Discussing Rate Hikes. The ECB Recognized Double Pressures from Rising Inflation and Slowing Growth Due to Middle Eastern Tensions, Increasing Expectations of a Rate Hike in April. The Bank of Japan Cited Middle Eastern Tensions and Oil Price Fluctuations as Key Risks, with Governor Ueda indicating a Possible Rate Hike in April if Inflation Trends Persist. Under These Conditions, Expectations of Tightening Macro Liquidity Are Weighing on Commodity Markets.

Overall, Given the Tightening Macro Liquidity and Lack of New Highlights in Oilseed Supply, Demand, or Policy, Oilseed Prices Are Showing Signs of Toping Out After Recent Gains. Soybean Oil Futures at 9000 and Palm Oil Futures at 10,000 Face Clear Resistance, Likely Leading to Short-Term High-Level Corrections. With Strait of Hormuz Navigation Nearly Stalled and Energy Facilities Damaged, the Risk of Further Oil Price Upside Remains, Potentially Supporting Oilseed Market Sentiment. However, High Oil Prices Could Also Trigger Recession Concerns, Limiting Further Gains. Continued Attention to Middle Eastern Developments Is Necessary.

Researcher: Shi Lihong

Futures Trading Advisory License: Z0014570

Futures Trading Advisory Qualification: Securities Permit [2011] No. 1461

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Editor: Zhao Siyuan