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Note: This article was AI-translated from Arabic and is currently under manual review. The author is not responsible for any translation errors. Please refer to the original Arabic text for the most accurate and authoritative information.
Founder of the platform, with more than 11 years of experience in marketing within the oils and fats industry.
On 1 July 2026, an Indonesian government decree took effect requiring every litre of diesel sold in the country to contain 50% palm oil. It was not a decision about oils — it was a decision about energy. And yet its most direct consequence will show up in the vegetable-oil import bill in Cairo, Tunis, and Riyadh.
This is no coincidence. It is the logical outcome of a deep structural shift: vegetable-oil markets are no longer purely food markets — they have become energy markets in disguise. At the heart of this shift stands a single indicator few outside trading rooms have heard of: the POGO Spread.
The name is short for Palm Oil – Gas Oil Spread — the price difference between palm oil and diesel fuel. It is calculated simply:
POGO = Crude Palm Oil price (Bursa Malaysia) − Gasoil price (Singapore / Europe)
The result is a single dollar-per-tonne figure, but it carries a complete economic decision within it:
In other words: POGO is the switch that determines where a drop of oil goes — to the frying pan or the fuel tank.
Over recent months the indicator has moved with unprecedented violence, and it deserves study:
Note what happened: rising crude on geopolitical tension pushed gasoil higher, so POGO collapsed. In March 2026 palm-oil prices jumped 3.7% in a single session — not on any news about production, weather, or food demand, but because fuel had become more expensive than oil.
This is the crucial point every professional in the oils sector must absorb: the price of edible oil is no longer set in the field alone — it is now set in the oil fields too.
Many assume all of the above concerns palm oil alone. That is a serious error. A second indicator transmits the shock to the rest of the oils, called the BOPO Spread — short for Bean Oil – Palm Oil, the gap between soybean oil (Chicago Board of Trade) and palm oil (Bursa Malaysia).
The historical rule: palm oil usually trades at a discount to soybean oil — meaning BOPO is positive. That discount is palm's competitive edge, the reason processors and importers favour it.
The result: there is no safe haven. A shock in one oil spreads to the whole complex within weeks, because oils are food substitutes for one another.
The gap widened by more than 80% in three months. The cause is twofold, and it is vital to understand:
In other words: two separate engines are lifting oils from opposite ends of the planet — and both are legislative engines, not market ones.
What today's wide BOPO means for the Arab importer is critical: palm is relatively cheap against soy. That means an enormous buying pressure — food and energy combined — will steer toward palm. Anyone buying soy today is paying a USD 566/tonne premium.
Before discussing its effect, let us define it. A Blending Mandate is a law under which the state requires fuel companies to blend a set percentage of biofuel into every litre of diesel (or gasoline) sold in the market.
The percentage is denoted by a letter and a number: B for biodiesel and E for ethanol, followed by the percentage. So B20 means 20% biodiesel and 80% fossil diesel, B50 means half and half, and B100 means pure biofuel.
The idea is, at its core, simple and politically attractive: instead of importing diesel with hard currency, you replace part of it with domestically produced oil — supporting farmers, cutting the energy bill, and lowering emissions, all with a stroke of the legislative pen. But that apparent simplicity conceals a profound effect on oil markets.
The mechanism is simpler than it seems, and more dangerous than it seems. It rests on three pillars:
When a state requires fuel companies to blend a set percentage of biodiesel, it creates demand that does not respond to price. The law says "blend 50%" — not "blend 50% if the price is right."
The result: when the oil price begins to fall, converting it to fuel becomes economically viable, so the energy sector absorbs the surplus and stops the price from dropping. Mandatory programmes did not cause oils to become expensive — but they prevent them from becoming cheap.
This is no longer a marginal phenomenon. According to Oil World estimates for the 2025/26 season:
Here lies the real cruelty. People eat regardless of price, and the law mandates blending regardless of price. When two inelastic demands compete for a limited supply, there is no correction mechanism — only a rise in price until the weaker party withdraws.
And the weaker party is always the consumer in price-sensitive markets — the developing, importing nations, most of the Arab world among them.
The first legislative framework was European: Directive 2003/30/EC, which set indicative (non-binding) biofuel targets of 2% by end-2005 and 5.75% by end-2010. This was the spark that ignited the global market.
But the Europeans initially left the targets voluntary; they became binding only with the Renewable Energy Directive (RED) in 2009, which mandated that 10% of road-transport energy come from renewable sources by 2020. Then came RED II (2018) and RED III, adding strict sustainability criteria.
The European paradox: the bloc that launched the race is itself now working to phase out palm oil from its list of approved feedstocks over deforestation concerns — after having helped build an entire industry upon it.
Despite Europe's legislative precedence, the first genuine, binding national biodiesel mandate was Brazilian:
Market impact: Brazil's production capacity stands at 14.6 million cubic metres, with soybean oil comprising roughly 70% of the feedstock. This explains much of the firmness in global soybean-oil prices.
No country has gone as far as Indonesia. The timeline:
Why does Indonesia do this when biodiesel is more expensive? Three reasons, none of which has anything to do with direct profit:
The Malaysian programme is quieter but steady:
Key notes:
Before reviewing volumes, we must understand a dangerous statistical fallacy into which most analysts fall.
When we read "the country produced X million tonnes of biodiesel," we automatically assume it consumed X million tonnes of oil. This is not true — because there are two completely different technical pathways, each with a different appetite for oil.
In the FAME pathway, oxygen remains inside the fuel molecule (because it is an ester). In HVO, hydrogen strips the oxygen out of the molecule and expels it as water and carbon dioxide.
Oxygen has weight. Removing it means losing mass. The direct consequence: Every litre of HVO devours more vegetable oil than a litre of FAME.
Because HVO is the pathway that is growing, not FAME. The reasons are structural:
Oil World estimates combined global biodiesel and HVO output at roughly 69.5 million tonnes in 2026, up 6.7 million tonnes on the prior year.
But the figure to watch is not the volume of fuel — it is the composition. The more the mix tilts toward HVO, the higher the oil consumption — without that showing up in the headline "biodiesel" statistics.
In other words: real oil demand is higher than the published numbers suggest, and the gap widens every year.
This is the question that matters to every trader, processor, and importer. The numbers are shocking:
Here the story takes a turn that may redraw the entire industry.
FELDA (the Federal Land Development Authority) — the giant Malaysian state body that manages agricultural settlements for hundreds of thousands of smallholders — has begun, together with its commercial arm FGV Holdings, to test B100: a biodiesel made of 100% palm oil, with no fossil component whatsoever.
According to statements by FELDA chairman Datuk Seri Ahmad Shabery Cheek in April 2026, the factory-gate price of B100 was around RM 4.40 – 4.50 per litre — compared with the prices prevailing at the time:
Read the figure again. At those prices, pure biodiesel was roughly 35% cheaper than fossil diesel.
An important methodological note: this comparison reflects a specific moment in time — the peak of crude prices following the geopolitical escalation of Q2 2026. It is contingent on both crude and palm-oil prices staying at their then-levels; any fall in crude or rise in palm oil could flip the equation again. Even so, its significance stands: for the first time, pure biodiesel approached — indeed surpassed — parity with fossil diesel, with no subsidy.
That in itself is a striking shift. For two decades, the first argument against biodiesel was cost. Today — amid volatile energy prices — the scenario in which biodiesel competes on its own, unsubsidised, has become plausible rather than impossible. It no longer necessarily needs a subsidy to make sense; it may need only infrastructure.
Here lies the real danger to edible-oil markets. Consider the logical sequence:
But even FELDA itself acknowledges the real constraint: its chairman stated plainly that "crude palm-oil supply may not be sufficient to roll out B100 at scale immediately."
That sentence captures the whole crisis: the problem is not technology or price — it is that land is finite, oil is finite, and the plate and the tank are competing for the same source.
When the "food versus fuel" criticism intensified, Western policy found what seemed a perfect escape hatch: don't use virgin oil — use waste. Used cooking oil (UCO), animal fats, mill residues.
These materials were rewarded with doubled incentives: in Europe, fuel made from waste receives Double Counting — one tonne counts as two toward compliance, granting it a value premium of between USD 400 and 600 per tonne over its virgin-oil counterpart.
The enormous incentives created a demand impossible to satisfy:
According to estimates by Germany's UFOP association, collectible used cooking oil amounts to no more than 5% to 10% of global vegetable-oil production — that is, only 12 to 24 million tonnes worldwide.
Compare that with demand: 59.3 million tonnes needed by the biofuel industry. Used cooking oil does not cover even half the requirement. The gap inevitably comes from virgin oil — that is, from our food.
And when demand exceeds supply eightfold, fraud is inevitable. The indicators are alarming:
The ironic conclusion: the policy designed to protect forests from palm oil has turned into a back door importing that very palm oil at a price premium.
The inevitable result: used oil — once a waste you paid to dispose of — has become a strategic commodity:
And in December 2024, China cancelled its export-tax rebate on used cooking oil, redirecting its volumes to domestic industry — leaving European refineries in a bind with no short-term substitute.
Most Arab countries are net importers of vegetable oils. That places them on the losing side of the entire equation:
If you work in oils — as a trader, processor, or buyer — these are the indicators to watch weekly:
For decades, analysing the oils market rested on three pillars: weather, production, and food demand (especially from India and China).
Today a fourth pillar has been added — and it is the most powerful: energy policy.
An energy minister's decision in Jakarta has become more consequential for the price of cooking oil in Cairo than an entire rainy season in Sudan. The POGO Spread is the indicator that translates that influence into a number.
As one Malaysian analyst put it eloquently:
"The plate and the tank do not always dine peacefully together."
