Technical University Munich Commodities as an Asset Class - risklab

2.1 The different Commodity Types
2.1.1 Energy
Everybody’s daily life is unimaginable without energy. The first energy sources
of men kind were wood, wind and water. Especially wood was used as a heating
medium. Over the centuries it became scarce around cities and people were forced to
change to another heating source. Great Britain was the first nation that switched
to coal in the 17th century. With ongoing industrialization its usage increased but
with it environmental problems. Since the middle of the 19th century the next
huge change started, the change from coal to oil. Especially the invention and
industrial integration of the combustion engine pushed world’s need for oil as major
energy source. Nowadays, energy became besides fresh water and clean air the
most important element in human life and nobody can imagine to live without
electrical light, heating and automatic transportation. No wonder, that energy
prices have a huge impact to our life and therewith, to industry. During the last
years, there has been a huge oil price surge. The reasons for this are manifold and
shall be explained in Section 2.1.1.1. Moreover, crude oil is the input for two also
exchange traded downstream products: heating oil and gasoline. Their dependence
structure and market characteristics are explained in Appendix B.1 and B.2. The
high price environment provoked by scarcity and political instability put men kind
under evolutionary pressure to change to another major energy source. Because coal
and nuclear energy are, caused by their unattractive environmental impacts, only
short term alternatives, natural gas and so-called alternative energy sources as listed
in Figure 2.1 are getting more popular. Natural gas is today the most promising
alternative and therefore, discussed in the Section 2.1.1.2.
2.1.1.1 Crude Oil
Crude oil is petroleum that is acquired directly from the ground. It is formed millions
of years ago from the remains of tiny aquatic plants and animals that lived in ancient
seas. Around 4,000 BC in Mesopotamia a tarry crude oil, called bitumen, was used
as caulking for ships, as a setting for jewels and mosaics. The walls of Babylon and
the Egyptian Pyramids are hold together with bitumen. During the 19th century
in America, an oil finding was often met with sadness, water was more attractive.
It wasn’t until 1854, with the invention of the oil lamp, that the first large-scale
demand for petroleum emerged. Rockefeller became the first billionaire by giving
away these lamps for free and earning money by selling the kerosine. Today, crude
oil is as important for the economy as air is important for men. It became world’s
first trillion dollar industry and accounts for the single largest product in world
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