The best-performing oil investment comes from trees in Malaysia, not the deserts of Saudi Arabia.

Vegetable oils from palm trees normally used in products like Hellmann's mayonnaise and Snickers chocolate bars are being converted to biodiesel after petroleum prices more than doubled in the past three years and governments encouraged renewable fuels. That has helped palm oil, which hit a two-year high this month, to rise 15 percent over the past year, outperforming the crude oil used for most diesel.

Christopher Wyke, who manages commodity investments at Schroders in London, expects a 25 percent gain in the price of palm oil in the next year. "It's a very attractive investment," he said.

Fuel from palms, soybeans and rapeseed now supplies less than 1 percent of the world's diesel. But in Europe, where one of every two new cars sold burns diesel, biodiesel output will double by 2008 to meet European Union targets for alternative-fuels use, the International Energy Agency in Paris forecasts. Worldwide that figure will triple, the agency said.

Supplies of diesel fuel from vegetable oils soared 80 percent in 2005, the agency said in July. That outpaced a 14 percent increase in production of ethanol, a fuel derived from corn and sugar that is used as an alternative to gasoline.

Crude oil reached a record $78.40 a barrel last month and has driven up the cost of diesel and gasoline, making biofuels more competitive. Palm oil costs $507.50 a ton in Europe, considerably less than the $680 a ton that is the average price of crude oil- derived diesel. Aiding the price difference, governments are subsidizing biodiesel to diversify energy supply and reduce greenhouse-gas emissions.

Vegetable oil-based diesel is made through a chemical process in which the glycerin is separated from the fat, or vegetable oil. The process leaves behind two products methyl esters, the chemical name for biodiesel, and glycerin, a byproduct usually sold for manufacturing in soaps and antifreeze.

In Europe, biodiesel costs the equivalent of 72 U.S. cents to produce, according to New Energy Finance, a London-based advisory company. A liter of diesel fuel sells for 81 cents on the wholesale market.

"As long as crude oil is above $50 a barrel, there is a momentum to biofuels that is unstoppable," said Michael Coleman, of the Cayman Islands-domiciled Merchant Commodity Fund, which has returned 42 percent in the past year. "It doesn't matter what happens to crude."

Oil has traded above $50 since May 2005. But even that figure may become less relevant in the future.

Andrew Owens, chief executive officer of Greenergy International, a biofuel supplier in London to retailers including Tesco, said, "The industry has got to a critical mass whereby it can weather downturns in the price of crude. That wasn't the case two years ago."

Palm oil is not just for trucks and cars. Npower, a British unit of the utility RWE is reviewing plans to convert a petroleum- powered plant to burn palm oil, a spokesman, Leon Flexman, said.

Biox Group, a biofuel producer based in the Netherlands, will have the first of four planned biofuel power plants running near Vlissingen early next year. The power will be sold to a Norwegian aluminum smelter.

"Right now, palm oil is the cheapest and most efficient of vegetable oils," said the group finance director of Biox, Edgare Kerkwijk, who moved to Singapore last year to be closer to the suppliers in Malaysia and Indonesia. "We need 100,000 tons a year. We can switch to other fuels when palm oil becomes too expensive."

Palm oil, however, is not without its detractors. The growing use of palm oil as fuel may threaten virgin rain forest in Southeast Asia and quicken deforestation, raising the likelihood of legal challenges from environmentalists, say some investors.

"The biggest challenge to palm oil is sustainability," said Domenic Carratu at Rabobank Groep in London. "Biodiesel aims to be environmentally friendly, but this would not be the case if the feedstock were only grown at the expense of virgin rain forest."

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Saijel Kishan reported from London.