Supply concerns are resurfacing for commodities from crude oil to soybeans, sparking the biggest rally for raw materials since August.

The Bloomberg Commodity Index, a measure of returns for 22 components, jumped as much as 2.3% to 82.55 on Tuesday, the biggest intraday gain since Aug. 27. Oil in New York climbed as much as 4.4%, corn reached a six-month high and silver headed for a bull market.

After five straight years of losses, commodity markets are rebounding as supply overhangs start to subside. Unfavorable weather is threatening soybean output in South America, while the start of a La Niña pattern this year could bring dry weather to U.S. grain-producing regions. Workers at Kuwait’s oil production facilities extended their strike for a third day over an unresolved pay dispute. Citigroup Inc. said this week that prospects for Chinese demand and a weaker dollar will also help prices to stabilize. The prospect of the Federal Reserve keeping U.S. interest rates low has lifted demand for raw materials as stores of value.

“It’s difficult to call a bottom, but it’s important to look at the positive fundamental factors that are driving prices higher — the Fed backing up, the uptick in global growth and the oversold condition,” said Walter “Bucky” Hellwig, who helps manage $17 billion as senior vice president at BB&T Wealth Management in Birmingham, Alabama. “You’ve got a lot of situations falling in line.”

Rising Inflows

Investors have poured more than $17 billion into exchange-traded products linked to commodities since the start of the year, data compiled by Bloomberg show. Total assets under management for commodities has climbed to about $315 billion, the highest since May 2015, Citigroup analysts including Ed Morse and Aakash Doshi wrote in a report this week. The holdings should “rebound further” in the second half of the year, they said.

“There is growing evidence that virtually all commodities have stared at a price bottom and are groping for a return to normal,” the Citigroup analysts said.

The bank raised its 2016 forecasts for copper, zinc and aluminum, which have all rallied from multi-year lows. The analysts increased their prediction for West Texas Intermediate oil to $42 a barrel in 2016 from $39.

Oil in New York has climbed 11% since December, the best start to a year since 2011. The labor stoppage in Kuwait initially slashed daily output by as much as 1.7 million barrels. Prices have rebounded more than 50% since mid-February, when futures reached the lowest in more than 12 years. A tumbling dollar and signs of stabilizing for the global economy have brought investors back to energy. Futures traded at $40.92 at 1:17 p.m. on the New York Mercantile Exchange.

Silver Jumps

Silver futures for May delivery gained 4.4% to $16.965 an ounce on the Comex in New York, after touching the highest since June. A settlement at that price would mark a more-than 20% gain from a recent low, meeting the common definition of a bull market. Trading volume was more than double the 100-day average for the time of day.

“The bottom line today is we’re seeing a continuation of momentum based on some fundamental changes,” Hellwig said. “Plus, there was a lot of underinvestment in commodities.”

— Check out Modestly Positive Q1 for Mutual Funds, but One Sector Jumps 42%: Lipper on ThinkAdvisor.

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