Palm advanced for the first time in four days on speculation that an increase in crude oil prices to the highest level in more than a month will boost demand for the tropical oil in biodiesel as production declines in Indonesia.

The contract for February delivery rose as much as 0.7 per cent to RM2,635 a metric tonne on the Bursa Malaysia Derivatives and traded at RM2,629 by the mid-day break in Kuala Lumpur. Futures advanced 7.8 per cent in 2013.

Palm oil, used in everything from candy to detergents, entered a bull market last month and is heading for its first annual gain in three years as production drops at plantations in Indonesia and biodiesel demand increases. Output in Indonesia, the biggest producer, will decline by 500,000 tonnes to 27.5 million tonnes this year, Dorab Mistry, director at Godrej International Ltd, said on November 29. That's the first drop since 1998, according to US Department of Agriculture data.

"Higher crude oil prices will mean increased usage of palm in biodiesel," said Ivy Ng, an analyst at CIMB Investment Bank Bhd, by phone from Kuala Lumpur. "Palm has generally trended down in the last few days and we are seeing some bargain buying because there are expectations that prices will rise as we head into the lower production months."

West Texas Intermediate crude oil climbed as much as 1.4 per cent to US$97.39 per barrel, the highest level since October 30, as US inventories shrank. Palm prices were also boosted by gains in soybeans, said Ng.

Soybean oil for January delivery advanced 0.3 per cent to 40.21 cents a pound on the Chicago Board of Trade. Soybeans climbed 0.4 per cent to US$13.245 a bushel.

Refined palm oil for May delivery gained 0.4 per cent to 6,250 yuan (US$1,026) a tonne on the Dalian Commodity Exchange. Soybean oil was little changed at 7,256 yuan.-- Bloomberg