Oil markets hit record highs on Monday after a supplier of a third of the world’s oil ordered a halt to all exports. But we’re not talking crude—this is cooking oil.
Faced with demonstrations from students upset over a 40% increase in the domestic price of cooking oil, Indonesia ordered a near-complete ban on palm oil exports last Friday, to go into effect on Thursday, and to last until further notice.
Oil futures spiked on the news. Malaysian palm oil futures increased by 7% on early trading, while soybean oil futures in Chicago traded 1.3% higher to reach levels not seen since 2008.
Indonesia supplies about half of the world’s palm oil, a major agricultural commodity used in consumer products ranging from cakes and cookies to shampoo and frying oil. The Southeast Asian country is also a major exporter to its neighbors, supplying up to half of India’s palm oil and up to 80% for Pakistan and Bangladesh.
“Nobody can compensate for the loss of Indonesian palm oil. Every country is going to suffer,” Rasheed JanMohd, chairman of the Pakistan Edible Oil Refiners Association, told Reuters on Monday.
Yet Indonesia’s palm oil ban may not be as widespread as initially feared. Late on Monday, Bloomberg reported that the country’s ban only concerned the refined palm oil product (olein) used in cooking and industrial frying. Crude palm oil as well as refined, bleached, and deodorized (RBD) palm oil—industrial products used in processed food and consumer products—are still available for export.
Global markets retreated again on the clarification, with Malaysian palm oil futures closing 4% down on Monday’s open, and Chicago’s soybean oil futures sinking back down 1.5%. But consumers will still feel the pinch of Jakarta’s export ban as it introduces new constraints on global crop and oil trades.
Supplies of sunflower oil tightened after Russia invaded Ukraine, one of the world’s biggest producers, sending prices of cooking oil skyrocketing in economies like the U.K., where some supermarkets are rationing consumer oil purchases, and India, where street vendors are reportedly ditching fried snacks and switching to peddling steamed treats instead.
Meanwhile, output from Malaysia, another major palm oil producer, has plummeted amid a shortage of foreign labor. Supplies of soybean oil, another alternative to sunflower and palm oil, have also run tight amid a drought in South America. Argentina, a leading exporter of soybean oil, briefly banned exports in March in order to raise export duties on the commodity.
The UN Food and Agriculture Organization reported in March that its benchmark index for global vegetable oil prices surged 23.2% that month.