Most developing and resource-rich countries offer high subsidies for fossil-fuel consumption. Subsidies for oil, natural gas, electricity and coal vary among countries depending on the natural resources present in the respective country in addition to other factors.

In the developed world, subsidies for oil is mostly non-existent despite some of the countries blessed with large reserves of oil. For example, the U.S. produces millions of gallons from places like Alaska, Texas, etc. and offshore fields. However the price of gasoline at the pump is not subsidized by the state and is determined by the market. Hence gas prices vary widely on a daily basis. The following chart shows the U.S. retail gas prices and the price of crude oil for the past five years:

Click to enlarge

Source: www.gasbuddy.com

The average retail price plunged to the lowest in the end of 2008 at the height of the credit crisis but has recovered to reach well above $3.00 per gallon now. For the most part, gas prices track the global crude oil prices.

Compared to the market-based pricing in the developed countries, emerging and oil-rich countries offer heavy subsidies for consumption of fossil-fuels primarily to simulate economic growth, alleviate poverty, etc.

The following chart shows the subsidies offered by select countries for different types of fossil fuel consumption:

Source: World Energy Outlook 2010, IEA

Oil-rich countries such as Saudi Arabia, Iran, Iraq, Malaysia, Venezuela, Mexico, etc. have high subsidies for oil consumption.

Related ETFs:

The United States Oil Fund (USO)
United States Gasoline Fund (UGA)
PowerShares DB Energy Fund (DBE)

Disclosure: No Positions