A BOTTLE of Château Pétrus ’82 can cost over $5,000, whereas the equivalent volume of crude oil sells for less than 50 cents. Château Brent may taste a tad rough, yet fine wine and crude oil have more in common than you might think. Their prices have risen and fallen in step in recent years (see chart).
Wine experts usually explain price movements by supply-side factors such as the effects of the weather and age, but research by Serhan Cevik and Tahsin Saadi Sedik, economists at the IMF, finds that supply has only a small impact on prices. Instead, fast economic growth in emerging economies has been much more important in recent years—as is the case for oil and other commodity prices.
Between 1998 and 2010 there was a correlation of over 90% between changes in oil and wine prices. This encouraged the two economists to build an economic model to explain swings in the prices of crude oil and fine wine using the same variables: oil or wine production, growth rates in rich and emerging economies, and a measure of global excess liquidity.
Emerging economies have accounted for more than 100% of the increase in global oil demand since 2000, while oil consumption in rich countries has declined. Likewise, rising incomes in emerging economies have spurred wine drinking, whereas consumption in Europe, notably France and Italy, has fallen. China (including Hong Kong) overtook Britain last year as the biggest export market for Bordeaux wines. So for both wine and oil, emerging economies now account for the bulk of incremental changes in demand and therefore have the biggest influence on prices.