Two of a kind: oil barons and wine traders
Thursday 20 January
The rise and fall (and rise) of the fine wine market has been measured against the gold and the FTSE indexes but never crude oil. Until now.
A working paper published by the International Monetary Fund has studied the price fluctuations of both crude oil and wine over a 20-year period to see if there are any correlations. And it believes there are.
The paper quotes the following figures:-
“The spot price of crude oil, as measured by the monthly average of Brent and West Texas Intermediate, surged from $20 per barrel in January 2002 to $134 in July 2008, surpassing its 1980 record high in constant prices. Similarly, fine wine prices—measured by the Liv-ex Fine Wine Investable Index—increased by 243 percent over the same period.
“Triggered by the credit market turbulence, the sudden downturn in global economic activity lowered crude oil and fine wine prices by 70 percent and 42 percent, respectively, in the second half of 2008. The post-crisis recovery, however, brought about a renewed surge in crude oil and fine wine prices, which increased by 86 percent and 62 percent between January 2009 and June 2010”.
Clearly there are some commonalities here.
Inevitably fine wine trading is subject to dips in the economy. In an economic downturn, both wine prices, crude oil prices, stocks, shares, and almost all investment-worthy assets are going to take a hit, as demand for such commodities falls, as we saw at the end of 2008 and start of 2009. Not exactly rocket science, is it?
However, it’s quite interesting to note that the authors of the study found that while ‘advanced’ wine-drinking and oil-using nations acccount for the bulk of consumption, emerging economies such as china have been responsible for the bulk of growth in global demand for both high quality, investment grade wine and crude oil.
I’m sure that fine wine traders won’t like being compared to oil barons but let’s face it they’re all trying to make a buck from something that comes out of the ground!
You can read the paper in full here