Is short-term investment in oil preferable to long-term? Deutsche Bank: The annualized return over the past 150 years is only 0.5%
Deutsche Bank AG's research indicates that the annualized real return on oil over the past 150 years has been only 0.5%, significantly lower than the performance of U.S. stocks and government bonds. Oil investments lack cash flow returns, and technological advancements suppress price increases, limiting long-term investment value. Nevertheless, oil prices are highly volatile in the short term, and investors should consider short-term operations rather than long-term holdings
In the long history of the commodity market, there is a harsh reality: oil, as a long-term investment target, has performed mediocrely.
According to news from the Chase Trading Desk, Jim Reid, the Global Head of Macro and Thematic Research at Deutsche Bank, bluntly pointed out in a recent research report that over the past 150 years, oil has only provided an annual real return of 0.5%, far behind the performance of U.S. stocks at 6.58% and U.S. 10-year Treasury bonds at 1.84%.
Deutsche Bank's analysis indicates that the core issue facing commodity investments is the lack of cash flow returns. Additionally, technological advancements have become a natural suppressor of price increases. Although the long-term investment value is limited, oil prices can experience extreme fluctuations in the short term.
This characteristic reveals a market truth: when it comes to oil, wise investors should "rent" rather than "buy."
Long-term Investment Disadvantages of Oil
Deutsche Bank's analysis of 150 years of historical data shows the fundamental disadvantages of oil investment:
In the long run, it has always been difficult to become a quality investment target. In terms of real return rates, oil significantly lags behind financial assets.
Even compared to other commodities, oil's annualized real return rate of 0.5% is only slightly higher than gold's 0.77%, while copper and wheat stand at -0.56% and -1.10%, respectively.
The core reason for this phenomenon lies in the fundamental characteristics of commodities. Unlike the dividends of stocks and the coupon payments of bonds, oil does not generate cash flow. Furthermore, over time, advancements in extraction technology and substitution effects in production make it difficult for oil prices to deviate significantly from their historical trends.
Extreme Short-term Volatility and Historical Turning Points
Despite the limited long-term investment value, oil prices can experience extreme fluctuations in the short term. Reid pointed out that from 2008 to 2020, oil prices fluctuated in a vast range, far exceeding the relative stability period from the late 1940s to 1973.
Looking back at key historical points, the 1973 oil crisis completely changed the pricing mechanism, when OAPEC (Organization of Arab Petroleum Exporting Countries) imposed an oil embargo on Western countries supporting Israel. Oil prices nearly quadrupled in a short period, pushing several countries, including the U.S. and the U.K., into recession, marking the end of the fixed pricing era dominated by U.S. government policies and the so-called "Seven Sisters" oil companies.
Overall, Deutsche Bank's research suggests that for ordinary investors, the best strategy for participating in the oil market is to seize short-term volatility opportunities rather than holding long-term. Although oil prices may have significant impacts on the market and economy over months or years, in the long run, its prices are unlikely to deviate significantly from inflation levels.
It is particularly noteworthy that current oil prices are close to long-term average levels, which means that the potential for significant increases may be limited. For investors, this reinforces the logic of "leasing" rather than "buying" oil—participating in the market through short-term trading strategies rather than viewing it as a core asset in a long-term investment portfolio
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Risk Warning and Disclaimer
The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk