?When Barclays Capital asked a commodities-market survey group what the price of oil will be at year-end 2009, it found that most are expecting higher, rather than lower. Among the participants, 5% cited less than $30; 35%, $30 to $50; 50%, $50 to $70; and 10%, $70 or more.

Which commodity market or sector will outperform? Gold, according to 23% of the survey participants; oil, 21%; grains, 20%; freight, 9%; gasoline, 7%; cocoa, 6%; copper, 6%; aluminum, 4%; silver, 2%; and natural gas, 2%.

As for what shape the economic recovery will take, 37% said U-shaped; 34%, L-shaped; 24%, W-shaped; and 5%, V-shaped.

The findings are from a survey of Barclays Capital clients at the firm’s recent fifth annual European Commodities investor conference. In the past, survey participants correctly predicted trends, such as the growth of raw-material investment in 2006, 2007 and the first half of 2008.

Participants also revealed changes to their investment strategies in the past 12 months. About 35% had not invested, 22% had scaled back investments, 20% held constant, 17% increased their investments and 6% completely cut their investments.

The respondents’ main concerns about investing in commodities in a volatile economy included further deterioration in commodity fundamentals (45%), general risk aversion (21%), deflation (18%) and liquidity and transparency issues (16%).

As for their expectations for annual average returns during the next five years, many said 10% or more (35%); others, 5% to 10% (33%); some, zero to 5% (27%); and the remainder, zero to minus 10%.

Barclays analysis. Investors are concerned about the potential for a further decline in commodity-market fundaments, and are favoring long-short and active management strategies over simple long-only exposure.

Although there are no broad trends across the commodity sector, the firm reports that investors are giving more attention to the fundamentals of individual commodities as they seek markets that are likely to outperform in 2009.

Meanwhile, commodity investors are not optimistic about global economic recovery, but their view of commodity investments remains positive. This is supported by big investment inflows into a range of different commodity-exchange-traded products in recent months.

“Commodities have always been a volatile asset class, but 2008 was an unprecedented year that saw historic peaks for gold and oil,” says Martin Woodhams, managing director and head of commodities investor solutions for Barclays Capital. “The economic slowdown is affecting commodities demand. Volatility is likely to remain high and, although oil prices have declined, significant regulatory scrutiny remains.”

Kevin Norrish, commodities research analyst, notes that the oil market has been showing tighter contango since January 2009, partially driven by OPEC production cuts of some 4 million barrels of daily output since mid-2008. Also, gasoline stocks are lower than usual for months immediately preceding summer.

“Even after recent big declines, commodities are one of the best-performing assets during the past 10 years,” he says. “Long-term price expectations remain very positive.” He adds that it will be some time before any clear trends re-emerge in commodity markets, so active strategies will provide the best returns.

Large price moves in early 2009 illustrate that, even in a bear market, opportunities exist, he says. Energy markets and grains, where supply and demand trends are promising, appear to hold upside potential.

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