Soyabean oil prices in the USA increased by more than a third in early June while petroleum prices rose by 45% during the same period, according to a report by the United States Department of Agriculture (USDA).

“While neither market is directly impacting prices in the other, higher energy values raise the floor for vegetable oil prices, providing support for the energy portion of the vegetable oil market,” the USDA said.

Other factors, including droughts in Canada and South America, the Russia-Ukraine conflict and trade restricting policies in some countries, had led to tight vegetable oil supplies, putting further pressure on prices, the USDA’s Foreign Agricultural Service (FAS) report published in June said.

“In the past, particularly in the mid-2000s, rising energy prices were the primary price driver for vegetable oils. However, the situation is different today with rising vegetable oil prices reflecting tight supplies.”

However, as vegetable oil supplies increased, resulting price declines would be limited if current high energy prices continued, the USDA added.

Meanwhile, soyabean oil prices in South America rose by 20%, according to the USDA report.

The rising price premiums for US soyabean oil reflected a stronger demand/supply balance in the USA compared to Brazil and Argentina, the report said.

Projected demand for industrial uses, including biodiesel, is driving demand in the USA, according to the report, where total domestic oil consumption is forecast 9% higher in 2022/23 compared to two years previously.

While food and feed use of all oils in the USA was projected to increase less than 1% in the 2022/23 marketing year, industrial uses were projected to rise by 28%, the USDA said.

“This contrasts with Brazil where domestic oil demand is forecast to decline in the coming year from 2020/21. Industrial use is projected to account for two-thirds of the decline as Brazil has reduced its blending requirement for biodiesel,” the USDA said.

“With declining domestic demand, there is less price pressure in the Brazilian market. There is also less pressure on soyabean oil prices in Argentina, despite rising biodiesel production, due to the much smaller domestic footprint for both oil and biodiesel.”