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Malaysian palm oil prices have risen due to expectations of increased biodiesel demand following a hike in crude oil prices against a backdrop of turmoil in the Middle East, Business Recorder reported.

However, rising prices are being held back due to higher stocks, according to the report.

The benchmark palm oil contract for December delivery on the Bursa Malaysia Derivatives Exchange increased by 8 ringgit or 0.22% on Monday 9 October to close at 3,608 ringgit/tonne (US$762.95/tonne), after dropping by 4.4% the previous week, the report on the same day said.

During early trading that day, the contract rose as much as 2.4% but most of the gains were lost due to expectations of higher stocks in Malaysia, the world’s second-biggest palm oil producer, Business Recorder wrote.

On the day of the report, crude oil prices surged more than 3% as military clashes between Israel and the Palestinian Islamist group Hamas sparked fears of a wider conflict in the Middle East, the report said.

“Due to the rally in crude oil prices, the market is expecting a scenario of increased palm oil demand for biofuel production,” Anilkumar Bagani, research head at Mumbai-based vegetable oil brokerage Sunvin Group, was quoted as saying.

Higher crude oil prices made palm oil a more attractive option for biodiesel feedstock, according to the report.

Meanwhile, soyabean oil prices on the Chicago Board of Trade were 1.37% higher during Asian hours on the day of the report.

The increase in palm oil prices was capped by weakness in Chinese vegetable oil prices, which were adjusting to the downside in the vegetable oil market during Chinese public holidays the previous week, Bagani added.

Palm oil price increases were also being held back by slowing import demand from leading buyer India and the expected rise in Malaysian palm oil stocks, a New-Delhi-based edible oil trader was quoted as saying in the report.

Malaysian palm oil stocks at the end of September were forecast to reach the highest level since last October despite increased exports due to higher output, according to a Reuters survey.

India’s September palm oil imports dropped 26% compared to the previous month after stocks reached record levels, Business Recorder wrote.