Many of the blog’s readers have been known to sample the occasional glass of wine. So it thought new research, from the IMF (International Monetary Fund), on the linkage between higher prices for fine wine and crude oil, might be of general interest.
The IMF’s researchers wanted to analyse “the causes of extreme fluctuations in commodity prices from 1990- 2010“. And they found, as the chart shows, that both markets are now being driven by common forces.
The authors say factors such as climate, grape quality, and age are not key drivers for wine prices. Instead, they found a 90% correlation in 2002 – June 2010 between wine prices and those of crude oil. And apparently, this has strengthened since the financial Crisis began in 2007.
The reason is the rise of naive investors, who somehow believe that investing in fine wine, or crude oil, diversifies their portfolio risk. So they have decided that both can qualify as ‘alternative assets’, replacing stocks and bonds.
So now we know. These investors are not only making our work more difficult, by bidding up the price of the industry’s major liquid feedstock, crude oil. But they are also increasing the cost of our key after-work feedstock as well.