WASHINGTON — Both wine and oil prices are chiefly driven by economic factors, a study released by the International Monetary Fund shows, demonstrating how factors like speculation, monetary policy and even grape quality have little to do with the recent strength in commodity prices.
Authors Serhan Cevik and Tahsin Saadi Sedik at the IMF picked the two very different commodities to study prices between 1990 and 2010, as they also found that emerging economies make up the bulk of the incremental change in demand — and therefore, prices.
The IMF authors measured monthly prices of crude, both Brent and West Texas Intermediate varieties, along with fine wine prices as measured by the Liv-ex Fine Wine Investable Index. And they found similarities.
Oil surged from $20 a barrel in January 2002 to $134 in July 2008, before tumbling 70 percent in the second half of 2008. Wine showed a similar pattern — up 243 percent between 2002 and the first half of 2008 before dropping 42 percent in the second half of 2008.
And both commodities recovered after the financial crisis ended, with oil up 86 percent and wine up 62 percent between January 2009 and June 2010.
Incredibly, the commodities showed a correlation of over 90 percent.
The authors then tested the price data against both supply figures — the Energy Information Administration’s global crude-oil production as well as the Organisation Internationale de la Vigne et du Vin’s wine production — and against monthly industrial production series from advanced and emerging economies.
They also looked at a measure of excess liquidity, which they defined as the difference between broad money growth and money demand in the euro area, Japan, the United Kingdom and the United States.
They found demand-side factors have the “dominant” effect on prices, while liquidity may have amplified the moves.
“Demand is the dominant factor in determining the behavior of crude oil and fine wine prices while production constraints have the expected effect,” they said. “The findings of our empirical analysis are robust and statistically significant.”
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