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Energy (34.3 % of BCOM; May performance 3.08%)Oil had the longest run of monthly gains in five years - rising for four consecutive months - as militant attacks cut Nigerian supply tothe lowest level in more than two decades while Canadian output fell amid wildfires, reducing supply. Oil has surged more than 87%since slumping to a 12-year low in February on signs the worldwide surplus is easing amid declining production.With intraday prices reaching 50 a barrel, a long-anticipated barrier, the question for the oil industry is what comes next? It maytake a rise to at least the mid- 50s with signs the rally has staying power before oil explorers start feeling secure again. The world’s50 biggest publicly traded oil companies need an average price of 53 a barrel to stop bleeding cash, according to industryconsultant Wood Mackenzie. For U.S. shale producers, oil may need to rise into the mid- 50s before drillers respond with asignificant ramp-up in well completions, Bloomberg Intelligence analysts said. After shaving billions of dollars off capital budgets thisyear, those companies have a backlog of thousands of wells that have been partially completed but not yet tapped.Low crude prices may finally be taking their toll on U.S. production. For the first four months of the year, U.S. output has fallenalmost 5%. The latest Department of Energy figures show output at 8.8 million barrels a day compared with 9.2 million at thebeginning of January. Saudi Arabia and Russia meanwhile have managed to keep output relatively unchanged.Senior people in the industry including Patrick Pouyanne, chief executive officer of French giant Total SA, and Fatih Birol, theexecutive director of the International Energy Agency, have warned repeatedly that investment cuts triggered by the current slumpcould lead to a production shortfall in the future. Wood Mackenzie estimated that explorers have canceled or delayed investmentsworth nearly 400 billion since prices started their slide in late 2014. Price movements don’t suggest investors are heeding thesecalls though as the market is still pricing the "lower-for-longer" mantra. While front-month futures for WTI have risen 32% this year,the recovery looks very different if you focus on the longer term. The five-year-forward WTI contract is only up 4% over the sameperiod reflecting the view that shale oil production could rebound as prices recover, capping any rally.Oil discoveries have fallen to a six-decade low as explorers cut billions of dollars of spending to ride out the biggest market slump ina generation. About 12.1 billion barrels of oil reserves were found in 2015, marking a fifth consecutive year of decline and thesmallest volume since 1952, according to Rystad Energy. Still, global climate targets are likely to curb oil consumption, and,according to Morgan Stanley, citing the IEA's base-case scenario, the gap between demand and supply would remain “small” and forthe next two decades “further exploration is required but only modestly so”.The world’s biggest oil companies are borrowing record amounts of money to cope with a slump in crude prices. Exxon Mobil Corp.,Royal Dutch Shell Plc, Chevron Corp., Total SA, BP Plc and Eni SpA have together sold the equivalent of 37 billion of bonds this year,about double the amount issued in the period before oil prices plunged, according to data compiled by Bloomberg. While this isstretching their balance sheets and even resulting in credit-rating downgrades, the lowest debt costs in a year are softening the blow.2

Since the start of 2015, 130 North American oil and gas producers and service companies have filed for bankruptcy owing almost 44 billion, according to law firm Haynes & Boone. The tally doesn’t include Chaparral Energy Inc., Penn Virginia Corp. and LinnEnergy LLC, which filed for bankruptcy earlier this month owing more than 11 billion combined.Oil producers took advantage of the rebound in crude markets to lock in protection against another slump. They increased their betson falling prices to the highest level in 4 1/2 years. Speculators reduced bets on falling prices to the lowest level in 11 months.Money managers’ short position in U.S. benchmark crude reached the least since June, according to data from the CommodityFutures Trading Commission.Federally mandated ethanol blending is adding extra pressure to the U.S. refiners' profits. The worst crude oil downturn in ageneration, which at first helped profits, has now passed through to the fuel prices. Now, gasoline is cheaper than the ethanol thatrefiners have no choice but to use under the Renewable Fuel Standard program introduced in 2005 under the Energy Policy Act.Ethanol futures on the Chicago Board of Trade averaged 21.5 cents above gasoline contracts on the New York Mercantile Exchangein the quarter, compared with an average 48-cent discount in the same period during the previous five years.American motorists will consume a record amount of gasoline this year as growing employment and low prices spur demand.Consumption will top the previous record reached in 2007 before the Great Recession, according to the EIA. Gasoline demand willaverage 9.32 million barrels a day in 2016, up from 9.29 million barrels projected in April. Consumption is then forecast to slip 0.1%to 9.31 million barrels in 2017. Pump prices tumbled to the lowest level in seven years in February, and while they’re up from theirlows, they still trail the average for this time of year, encouraging vehicle use.U.S. natural gas futures capped the longest monthly winning streak in three years as forecasts showed hot weather making acomeback. The third straight monthly increase was gas’s best bullish run since the period from late 2013. Gas bulls are betting onhot weather to erode a stockpile surplus that’s the biggest since 2006 for this time of year. Without a scorching summer and adecline in gas production from shale formations, inventories will reach a record before the winter, capping price gains. Gas demandfor power plants has advanced 26% from this time last year, data from PointLogic Energy show. Drillers, however, are beatingproduction estimates as the price collapse forced them to become leaner, producing more fuel with the fewest rigs since at least the1980s. Improved drilling technology has made explorers more efficient, boosting output even as they reduce costs. While thenumber of rigs has fallen dramatically, producers are drilling several wells from the same site, cutting longer horizontal segmentsthrough shale rock to yield more gas.3

Grains (23.3% of BCOM; May performance 1.76%)Bad weather across South America is shrinking global supplies of soybeans, helping prices extend a rally to a 2-year high. Floodingdestroyed plants, hurt crop quality and delayed harvesting and impeded shipments in Argentina. Rains also hampered output inUruguay. Dry weather hurt production in Brazil, the world’s largest exporter of the oilseed. South African grain and oilseed pricessurged to records making the country a net buyer of the commodities after a drought damaged local harvests. The supply woes sentsoybean prices into a bull market last month. Hedge funds are expecting more gains, with their bets on a rally rising to the highestsince April 2014. The inventories provide a cushion though as they stand to be second-biggest ever even.China is so hungry for soybeans it has taken a major foray into expanding its control over supplies from Brazil, the world’s topexporter. A unit of China’s Shanghai Pengxin Group Co. bought a controlling stake in Brazil’s soybean trader and biodiesel makerFiagril Ltda for 286 million. The deal would be the first major Chinese acquisition of an agricultural company in Brazil. Almost 78%of Brazil’s soybean shipments went to the China in 2015.The best rally for corn prices in 10 months meant U.S. farmers were frantic to sell from the mountain of grain they’d been hoarding.Growers have been stockpiling supplies following a string of bumper harvests, waiting patiently for a rebound in prices. Their hopeshave finally been answered after dry weather threatened crops in Brazil, sending futures traded in Chicago to their highest in almosta year. South Africa, the continent’s biggest producer of corn, became a net importer of the grain for the first time since 2008 thisyear as the worst drought in more than a century hurt local output. South Africa last year had the least rainfall since records startedin 1904, damaging crops and raising prices. The nation imported 1.96 million metric tons of corn in the marketing year ended April29, that’s the most since 1993.Wheat supplies are forecast to remain ample next season. U.S. reserves will rise to 1.029 billion bushels by May 2017, while worldinventories at the end of the 2016-17 season are estimated to a reach an all-time high. The wheat harvest in Kansas will rebound 19%this year, according to findings from a crop tour organized by the Wheat Quality Council, meaning favorable weather in the largestU.S. grower of the grain will likely exacerbate a global glut. Showers in April revived crop prospects across the state and helpedfarmers avoid a developing drought, while above-normal temperatures warmed soil in February and March to prevent threeseparate freezes from damaging immature plants. Wheat prices are near the lowest since June 2010 after bumper harvests in theEuropean Union, Russia, Ukraine and India pushed global reserves to a five-year high.4