In a move to cut fossil fuel usage, Indonesia and Malaysia, which produce 85% of the global supply of palm oil, are diverting increasing amounts of palm oil for biodiesel production reducing its availability for other uses and causing higher prices. Higher crude oil prices over the past 18 months have driven Indonesia, which relies on crude oil imports for 40% of its oil needs, to cut subsidies on motor fuel last year pushing up gasoline and diesel prices by a third and driving up demand for biofuels. Indonesia will increase the amount of palm oil used for biodiesel production from 1.8% – 2.1% of total production last year to 7.7% of total production this year. By July of this year, Malaysia is set to enact 5% palm oil biodiesel blending across the country. Since March of this year palm oil prices have eased marginally, however if the anticipated El Nino weather system materializes this summer prices will likely remain high throughout the remainder of 2014 and into 2015.
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