COMMODITY INCOME


Figure 2:


0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0


WTI Logarithmic Price 100


During the last 27 years the growth rate has stayed approximately the same, at 6.9% per year


y = 0.0002x - 2.31 R = 0.86


2


y = 0.0237e0.0002x R = 0.76


2


10 Source: Federal Reserve Bank of St. Louis


level of interest rates may have an incentive to control oil prices instead. Oil price exposure provides an excellent inflation


hedge over the long term. Figure 3 emphasizes this point: over the last ten years, oil has maintained and increased its nominal value even as the last financial crisis hit world economies.


... the price of oil will always


remain higher than the marginal cost of producing it


When considering global supply and demand as fundamental price drivers, we note that the market for oil is not competitive but littered with imperfections: oligopolistic supply, oligopsonistic refinery, high fixed costs and limited refining capacities, price controls and subsidies, political tampering with supply, consumption controls, and more.


Figure 3: Currencies in Terms of Oil (Indexed: Jan 2003 = 100)


100 120 140


20 40 60 80


0 USD EUR GBP JPY Insch Quantrend Ltd; Data Source: Bloomberg Figure 4: Spot Oil Price – WTI Adjusted For Inflation Iran-Iraq War CAD CHF


OIL


US supply & price control


1.0


Source: Insch Capital Management March 2013 57


Inflation Adjusted Oil Price (Logarithmic Scale) 1947 1957


1947


1967 1957 1977


1987 1967 1997 Texas oil peak 2007 1977 Iran Revolution


Saudi Arabia supply ramp


1987 Gulf War 02/1995 1997


East- Asian crisis


02/1990 2013 Logarithmic Price 02/1985


Venezuela unrest


Second Gulf War


02/2005 2007 Financial crisis 2013 Arab Srping


02/2010 02/2012


02/2000


12/2002 12/2003 12/2004 12/2005 12/2006 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012


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