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Palm oil dips on Middle East tensions, supply shortage supports third weekly gain

KUALA LUMPUR (Reuters) - Malaysian palm oil futures closed lower on Friday after a U.S. air strike in Baghdad stoked tensions in the Middle East, but recorded gains for a third straight week due to lower production.

Palm oil fruits are pictured at a plantation during a temporary state of siege, approved by the Guatemalan Congress following the death of several soldiers last week, in the community of Semuy II, Izabal province, Guatemala September 10, 2019. REUTERS/Luis Echeverria/Files

The benchmark palm oil contract for March delivery on the Bursa Malaysia Derivatives Exchange closed to trade 13 ringgit lower, or 0.4%, to 3,117 ringgit ($760.15).

However, it ended the week 1.4% higher, continuing momentum from last week’s 5.5% rise.

“Prices were lower on profit-taking activities over worries about the escalating tension in the Middle East,” said Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari Sdn Bhd.

Brent crude futures jumped nearly $3 on concerns over oil supply disruption following the U.S. air strike that killed top Iranian and Iraqi military commanders.

However, in the case of crude palm oil, lower production and tightness in supplies will cushion against any major selloff, Paramalingam added.

Malaysia’s crude palm oil production for 2019-20 was forecast at 20.6 million MT, the U.S. Department of Agriculture attache in Kuala Lumpur said, down 200,000 metric tonnes (MT) from its estimate in its previous quarterly report.

Expectations of higher imports from India after the world’s largest edible oil buyer cut import taxes on crude and refined palm oil from Southeast Asian countries on Tuesday also helped cap losses.

Palm oil prices soared nearly 44% in the final quarter of 2019 on declining stockpiles and expectations of a production drop in the first half of 2020 due to dry weather and lower fertiliser usage in top producers Malaysia and Indonesia.

Dalian’s most-active soyoil contract rose 1.5%, while its palm oil contract dropped 1.2%. Soyoil prices on the Chicago Board of Trade gained 0.4%.

Palm oil is affected by price movements in related oils as they compete for a share in the global vegetable oils market.

Reporting by Mei Mei Chu; Editing by Richard Pullin and Arun Koyyur