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  • May 2016Market Commentary 02Commodity Performance BCOM 08 Roll Select 09 Historical 10Contribution to Return & Weights 11Commodity Volatility Realized 12 Implied 13 Historical Realized 14Commodity Correlation Composites 15 Singles 16 US CPI Indices 17 Country CPI 18 Country GDP 19Commitment of Traders Report Monthly Notional Change & Correlation 20 Historical Net Positions 21Commodity Inventories & Sales Monthly Change & Correlation 23 Historical Levels 24Commodity ETP Flows 26Term Structures 27Research Dashboards (BI) 29Bloomberg Cheat Sheet 30

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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 to the 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 may take a rise to at least the mid-$50s with signs the rally has staying power before oil explorers start feeling secure again. The worlds 50 biggest publicly traded oil companies need an average price of $53 a barrel to stop bleeding cash, according to industry consultant Wood Mackenzie. For U.S. shale producers, oil may need to rise into the mid-$50s before drillers respond with a significant ramp-up in well completions, Bloomberg Intelligence analysts said. After shaving billions of dollars off capital budgets this year, 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 fallen almost 5%. The latest Department of Energy figures show output at 8.8 million barrels a day compared with 9.2 million at the beginning 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, the executive director of the International Energy Agency, have warned repeatedly that investment cuts triggered by the current slump could lead to a production shortfall in the future. Wood Mackenzie estimated that explorers have canceled or delayed investments worth nearly $400 billion since prices started their slide in late 2014. Price movements dont suggest investors are heeding these calls 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 same period 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 in a generation. About 12.1 billion barrels of oil reserves were found in 2015, marking a fifth consecutive year of decline and the smallest 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 for the next two decades further exploration is required but only modestly so.

    The worlds 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 is stretching their balance sheets and even resulting in credit-rating downgrades, the lowest debt costs in a year are softening the blow.


  • 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 doesnt include Chaparral Energy Inc., Penn Virginia Corp. and Linn Energy 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 bets on 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 Commodity Futures Trading Commission.

    Federally mandated ethanol blending is adding extra pressure to the U.S. refiners' profits. The worst crude oil downturn in a generation, which at first helped profits, has now passed through to the fuel prices. Now, gasoline is cheaper than the ethanol that refiners 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 Exchange in 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 will average 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 theyre up from their lows, 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 a comeback. The third straight monthly increase was gass best bullish run since the period from late 2013. Gas bulls are betting on hot weather to erode a stockpile surplus thats the biggest since 2006 for this time of year. Without a scorching summer and a decline in gas production from shale formations, inventories will reach a record before the winter, capping price gains. Gas demand for power plants has advanced 26% from this time last year, data from PointLogic Energy show. Drillers, however, are beating production estimates as the price collapse forced them to become leaner, producing more fuel with the fewest rigs since at least the 1980s. Improved drilling technology has made explorers more efficient, boosting output even as they reduce costs. While the number of rigs has fallen dramatically, producers are drilling several wells from the same site, cutting longer horizontal segments through shale rock to yield more gas.


  • 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. Flooding destroyed plants, hurt crop quality and delayed harvesting and impeded shipments in Argentina. Rains also hampered output in Uruguay. Dry weather hurt production in Brazil, the worlds largest exporter of the oilseed. South African grain and oilseed prices surged to records making the country a net buyer of the commodities after a drought damaged local harvests. The supply woes sent soybean prices into a bull market last month. Hedge funds are expecting more gains, with their bets on a rally rising to the highest since 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 worlds top exporter. A unit of Chinas Shanghai Pengxin Group Co. bought a controlling stake in Brazils soybean trader and biodiesel maker Fiagril Ltda for $286 million. The deal would be the first major Chinese acquisition of an agricultural company in Brazil. Almost 78% of Brazils 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 theyd been hoarding. Growers have been stockpiling supplies following a string of bumper harvests, waiting patiently for a rebound in prices. Their hopes have finally been answered after dry weather threatened crops in Brazil, sending futures traded in Chicago to their highest in almost a year. South Africa, the continents biggest producer of corn, became a net importer of the grain for the first time since 2008 this year as the worst drought in more than a century hurt local output. South Africa last year had the least rainfall since records started in 1904, damaging crops and raising prices. The nation imported 1.96 million metric tons of corn in the marketing year ended April 29, thats 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 world inventories 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


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