Some of the surplus of crude palm oil output is expected to be absorbed by the energy sector, helping to offset falling long-term prices due to the rise of palm-based methyl ester stocks, also known as biodiesel or B100.
Energy permanent secretary Areepong Bhoocha-oom said the Department of Energy Business has ordered oil traders to increase the proportion of the biodiesel blend with diesel to 7%, known as B7, from B3 and B5.
B7 has been circulated since May, boosting B100 consumption to 4 million litres per day, up from 2.2 million litres previously.
Oil traders were also asked to increase commercial stock of B100 to 100 million litres from 50 million ahead of the start of the palm fruit harvest, when millions of tonnes of palm fruit and crude palm oil will flood the market. The build-up will help absorb excess crude palm oil from the market and support prices.
Mr Areepong said the rainy season, which came earlier than expected, ripened the palm fruit prematurely and accelerated the harvesting period, resulting in an oversupply of palm fruit and crude palm oil that dragged prices down.
National crude palm oil stocks rose to 430,000 tonnes a month, up from 250,000 normally. The increased proportion of B100 in diesel will absorb up to 180,000 tonnes of crude palm oil from the market within a few weeks and stabilise crude palm and palm fruit prices.
The price of crude palm oil rebounded to 23.75 baht per kilogramme from 22.90 baht last month, while palm fruit prices rose to 4.30 baht per kilogramme, up from 3.90 baht.
To prevent plummeting palm prices during the harvest season in the long term, Mr Areepong said the Energy Ministry has proposed the government pool efforts with other agencies to manage palm production and improve the supply chain.
The palm oil industry is partially subsidised and controlled by the government to help protect local farmers from cheaper imported palm products from Malaysia and Indonesia.