GRACELIN BASKARAN: Producers beware, don’t fall for price signal stories
It would be a grave mistake to build policies around these indices
Price signals have given commodities strategists, politicians and economists a run for their money in the past few years. My suggestion: use prudent judgment.
For example, price signals from the oil and gas market would suggest that developing new assets in Sub-Saharan Africa could be a good move. But the signals don’t capture the enormous uncertainty experienced by carbon-rich countries. The potent combination of environmental regulations, consumer behaviour and technological changes will lead to a significant drop in fossil fuel prices over the next 10 years. Oil and gas reserves can last up to roughly 50 years, so following price signals could generate stranded assets in the not-so-distant future. ..
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