KUALA LUMPUR: Malaysian palm oil futures rose for a second session and hit a one-week high on Tuesday, buoyed by expectations of lower output and as traders covered their short positions ahead of the Lunar New Year holidays, but gains were restricted as crude oil prices resumed their descent. Benchmark palm oil prices have been under pressure and hit a one-week low earlier this month in the absence of an expected pick up in demand from China before the new year celebrations in February. A plunge in crude oil futures to 12-year lows has also made the tropical oil less attractive for blending into biofuel. "Lower output in January and short covering are the catalysts behind firmer prices today," said a trader based in Kuala Lumpur. "As February is a short month with long Chinese New Year holidays, major selloffs will be muted temporarily." The palm oil contract for April on the Bursa Malaysia Derivatives Exchange gained 0.6 percent to 2,475 ringgit ($577.12) per tonne at the close of trade. It earlier reached 2,479 ringgit, its highest since Jan. 18. Traded volume stood at 44,679 lots of 25 tonnes each. The market will be closed on Feb. 1 for a public holiday in Kuala Lumpur, and over Feb. 8-9 for the Lunar New Year holidays. Production from Malaysia, the world's No.2 palm oil producer after Indonesia, is expected to decline in the coming months, in line with seasonal trends and as the impact of a crop-damaging dry weather linked to an El Nino weather pattern kicks in. Palm oil still targets a resistance at 2,495 ringgit per tonne, as suggested by its wave pattern and a Fibonacci projection analysis, according to Wang Tao, a Reuters market analyst for commodities and energy technicals. However, weak exports will likely keep a lid on gains. Data from cargo surveyors shows monthly exports of Malaysian palm oil products have dropped around 8 percent so far in January. A slide in crude oil prices to below $30 per barrel, after a brief rally towards the end of last week, will also drag on palm oil futures. The US March soyoil contract was slightly down 0.1 percent, while the May soybean oil contract on the Dalian Commodity Exchange rose 0.1 percent.

Source