Fine wine and crude oil dance in step …

A bottle of the best wine can cost over $5000, whereas an equivalent volume of crude oil (about a liter) sells for a dollar or less. The bottle of wine may taste a little rough, yet fine wine and crude oil have more in common than you may think. Their prices have risen and fallen in step in the last 15 years.

Wine experts usually explain the price movement by supply-side factors such as weather and age. But supply has only a small impact on prices. Fast economic growth in emerging economies (read India, China) has been much more important in recent years—as is the case for oil and other commodity prices.

Between 1988 and 2010, the prices of both oil and wine ran nearly step-to-step. There seems to be a link between oil or wine production, growth rates in emerging economies like India and China and the rich economies, and third, a measure of global excess liquidity.

China and India and other rising economies have accounted for more than 100 per cent of the increase in global oil demand since 2000, while oil consumption in rich countries has declined.

Likewise rising incomes in emerging economies has spurred wine drinking, whereas consumption in Europe, notably France and Italy, has fallen.

(Pic source: internet)

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