Subsidies Driving Up Global Oil Prices: Pro
Global exports of crude oil have been in decline since 2005 and domestic subsidies are partly to blame, Mark C Lewis, research analyst at Deutsche Bank told CNBC on Tuesday.
“Subsidies on domestic oil consumption have been instrumental in driving a very material increase in domestic demand within OPEC and other oil-exporting countries over the last decade, “ Lewis explained.
“The fact that less oil has been finding its way on to global markets since 2005 is the main reason why crude prices have been rising,” he said.
Subsidies are concentrated in OPEC countries where, according to the International Energy Agency, consumption of oil has risen more than 56 percent in a decade.
Lewis believes this means a continued squeeze on supply, resulting in real crude oil prices rising further over the long term.
One non OPEC exporter, Nigeria, recently failed to remove subsidies on domestic oil, after fuel protests turned violent.
But Lewis is convinced that maintaining subsidized oil will only store up future problems.
“It’s not in the interest of these producing countries to be selling oil much more cheaply than they could be on domestic markets," he said.
“Domestic subsidies are creating a dependency that over the long term is simply not sustainable,” said Lewis.