The benchmark palm oil contract for February delivery on the Bursa Malaysia Derivatives Exchange lost RM38.00, or 1.02%, to RM3,697 (US$785.93) by the midday break.

“The market is stressed about the drop in export demand, making traders kind of ignore the production slump,” said a New-Delhi-based edible oil trader.

Exports of palm oil products for Dec 1-10 fell 4.1% to 7.4% from the Nov 1-10 period, cargo surveyors said.

Palm oil stocks fell for the first time in seven months at the end of November as production slumped more than exports, data from industry regulator Malaysian Palm Oil Board (MPOB) showed on Tuesday.

The recent drop in soyoil prices has reduced its premium over palm oil, making it increasingly competitive against palm oil, the trader said.

Soyoil futures on the Chicago Board of Trade were trading down 0.26% after losing 1.4% in the previous session. Palm oil is affected by price movements in related oils as they compete for a share in the global vegetable oils market.

A sharp drop in crude oil prices over the past month has raised concerns that the demand for palm oil from the biodiesel industry might decrease, said a Kuala Lumpur-based dealer.

Cheaper crude oil makes palm oil a less attractive feedstock for biofuels.

Oil prices extended losses on Wednesday, after falling by more than 3% to six-month lows in the previous session on oversupply and demand concerns.

Palm oil may break support of RM3,682 per metric ton, and fall to the Dec 7 low of RM3,641 ringgit, Reuters’ technical analyst Wang Tao said.