Order Code RS22204
Updated September 20, 2005January 20, 2006
CRS Report for Congress
Received through the CRS Web
U.S. Trade Deficit and the
Impact of Rising Oil Prices
James K. Jackson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
Petroleum prices have risen sharply since early 2004. At the same time the average
amount of imports of energy-related petroleum products has fallenrisen slightly. The
combination of sharply rising prices and a slightly decreasedhigher level of demand for
imports of energy-relatedenergyrelated petroleum products translates into an escalating cost for those
imports. This
rising cost could add an estimated $60 to $9070 billion to the Nationnation’s trade
deficit in 2005,
depending on how sustainable are the recent price increases. This report
provides an
estimate of the initial impact of the rising oil prices on the Nation’s
nation’s merchandise trade
deficit. This report will be updated as warranted by events.
Background
According to data published by the Census Bureau of the Department of Commerce,1
the prices of petroleum products over the past year have risen considerably faster than the
change in demand for those products. As a result, it is estimated that the price increases
of imported energy-related petroleum products will worsen the U.S. trade deficit in 2005.
Energy-related petroleum products is a term used by the Census Bureau and includes
crude oil, petroleum preparations, and liquefied propane and butane gas. Crude oil
comprises the largest share by far within this broad category of energy-related imports.
The increase in the trade deficit is expected to have a slightly negative impact on U.S.
gross domestic product (GDP) and could place further downward pressure on the dollar
against a broad range of other currencies. To the extent that the additions to the
merchandise trade deficit are returned to the U.S. economy as payment for additional U.S.
exports or to acquire such assets as securities or U.S. businesses, some of the negative
effects could be mitigated.
1
Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods
and Services, January 12, 2006. Table 17. The report and supporting tables are available at
[http://www.census.gov/foreign-trade/Press-Release/current_press_release/ftdpress.pdf].
Congressional Research Service ˜ The Library of Congress
CRS-2
Table 1 presents summary data from the Census Bureau for the change in the
volume, or quantity, of energy-related petroleum imports and the change in the price, or
the value, of those imports for 2004 and for the first sixeleven months of 2005. Based on the
data for the January through JulyNovember 2005 period, estimates are provided for the values for
the full year 2005.
1
Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods
and Services, August 12, 2005. Table 17.
Congressional Research Service { The Library of Congress
CRS-2
for the full year 2005.
Table 1. Summary Data of U.S. Imports of Energy-Related
Petroleum Products, Including Oil (not seasonally adjusted)
January through July
2004
Quantity
(thousands
of barrels)November
2004
2005
Value
(thousands of
dollars)
Quantity
(thousands
of barrels)
Quantity
(thousands
of barrels)
Percent
Value
change
(thousands of
2004 to
dollars)
2005
2.2% $126,573,327
Total energyrelated Petroleum
Products
2,843,827
$92,840,031
2,904,996
Crude oil
2,226,715
$70,030,230
2,218,494
-0.4%
$93,408,579
Percent
change
2004 to
2005
36.4%
33.4Percent
change
2004 to
2005
Total energyrelated Petroleum
Products
4,507,185
$159,218,460
4,583,579
1.7% $221,807,148
39.3%
Crude oil
3,500,393
$120,053,553
3,441,604
-1.7% $160,062,321
33.3%
January through December
2004
2005
(Actual values)
(Estimated values)
Quantity
(thousands
of barrels)
Value
(thousands of
dollars)
Quantity
(thousands
of barrels)
Percent
Value
change
(thousands of
2004 to
dollars)
2005
Percent
change
2004 to
2005
Total energyrelated Petroleum
Products
4,917,591
$174,499,173
5,023,365
2.2%
$237,980,105
36.4000,941
1.7%
$243,094,701
39.3%
Crude oil
3,820,979
$131,742,664
3,806,872
-0.4%
$175,772,613
33.4756,806
-1.7%
$175,646,918
33.3%
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods and
Services, September 13, 2005January 12, 2006. Table 17.
Note: Estimates for January through December of 2005 were developed by CRS from data through the first
seveneleven months of 2005 published by the Census Bureau using a straight line extrapolation.
The data indicate that the United States imported 4.9 billion barrels of total energyrelated petroleum products in 2004, valued at $174 billion. In the January through July
November period, imports increased from a total of 2.84.5 billion barrels in 2004 to 2.9 4.6
billion barrels
in 2005, for an increase in the volume of total energy-related petroleum
products imports
of 2.2 of 1.7%. As Figure 1 shows, imports of energy-related petroleum
products can vary
sharply on a monthly basis, but averaged about 410 million barrels a month over the
January 2004 to July 2005 period
month in 2004 and 417 barrels a month from January to November 2005.
In value terms, energy-related imports in the January-JuneNovember period rose from
over $92
159 billion in 2004 to $126222 billion in 2005, or an increase of 36.439.3%. As Figure 2
shows, the
cost of U.S. imports of energy-related petroleum products has risen from about $11.5
billion per month in early 2004 to nearly $21 billion a month in July 2005. Based on the
data for the January-July 2005 period, imports of total energy-related petroleum products
CRS-3
Figure 1. Quantity of U.S. Imports of Energy-Related
Petroleum Products
450
Millions of barrels
440
430
420
410
400
390
380
370
Jan Mar May Jly Sep Nov Jan Mar May Jly Sep Nov
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct
2004
2005
Source: Department of Commerce
$11.5 billion per month in early 2004 to over $26 billion a month in November 2005.
Based on the data for the January-November 2005 period, imports of total energy-related
petroleum products for the full year 2005 are projected to rise to 5.0 billion barrels from
4.9 billion barrels in
2004 and to rise in value to an estimated $238243 billion from the $174
billion spent in 2004
on such imports, or an increase in the U.S. trade deficit by an
estimated $6470 billion due
to the increase in oil prices. This estimate of the value of
energy-related petroleum
products imports is based on an increase in demandthe quantity of
imports at the current rate and on prices at the
July November 2005 level. This estimate could be low as a result of the rise in oil prices that has
CRS-3
occurred since the July data. For instance, by August 2005, such prices had climbed to
more than $60 per barrel. If the price of $60 per barrel were maintained for the remaining
seven months of 2005 from June to December, the estimated cost for imports of energyrelated petroleum products could rise to as much as $270 billion, or an increase in the
trade deficit by about $90 billion.
Figure 1. Quantity of U.S. Imports of Energy-Related
Petroleum Products
450
Millions of barrels
440
430
420
410
400
390
380
370
Jan
Mar May
Jly
Sep
Nov
Jan
Mar May
Jly
Feb
Apr
Jun
Aug
Oct
Dec
Feb
Apr
Jun
2004
2005
Source: Department of Commerce
Figure 2. U.S. Import Price Per Barrel of Crude Oil
$50
Dollars per barrel
$48
$46
$44
$42
$40
$38
$36
$34
$32
$30
$28
Jan
Mar May
Jly
Sep
Nov
Jan
Mar May
Jly
Feb
Apr
Jun
Aug
Oct
Dec
Feb
Apr
Jun
Source: Department of Commerce
2004
2005
CRS-4
be higher as a result of fluctuations in oil prices that occurred in early December. If oil
import prices hold in the range of $60 per barrel throughout 2006, the U.S. trade deficit
in energy trade could rise by another $50 billion to reach $300 billion.
Figure 2. U.S. Import Price Per Barrel of Crude Oil
Dollars per barrel
$58
$56
$54
$52
$50
$48
$46
$44
$42
$40
$38
$36
$34
$32
$30
$28
Jan Mar May Jly
Sep Nov Jan Mar May Jly
Sep Nov
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct
Source: Department of Commerce
2004
2005
CRS-4
At an average price of $52 per barrel in November 2005, oil prices had moderated
slightly from the average price of $57 per barrel reached in September 2005. If the price
of $52 per barrel were maintained for the remaining two months of 2005 from November
to December, the estimated cost for imports of energy-related petroleum products could
total about $243 billion, or an increase in the trade deficit over 2004 of about $70 billion.
As a result of this sharp rise in the value of energy-related imports, such imports now
account for one-third of the total value of the U.S. trade deficit, up from one-fifth in less
than two years, but still account for less than the average share during much of the 1990s,
when such imports could account for half of the overall U.S. trade deficit.
Table 2. U.S. Imports of Energy-Related Petroleum Products,
Including Crude Oil (not seasonally adjusted)
Total energy-related
petroleum products a
Period
Value
QuantityQuantity
Value
(thousands (thousands of
dollars)
of barrels)
dollars)
Crude oil
Quantity
(thousands
of barrels)
Unit
Value
Thousands of
priceValue
Unit
barrels per (thousands of
(dollarsprice
day (average)
dollars)
day (average(dollars)
2004
Jan.- Dec.
4,917,591 $174,499,173
3,820,979
10,440 $131,742,664
$34.48
Jan.- July
2,843,827
92,810,031
2,226,715
10,454
70,030,230
31.45
January
395,226
11,654,763
309,876
9,996
8,852,497
28.57
February
380,038
11,481,124
288,494
9,948
8,414,097
29.17
March
429,420
13,662,246
329,991
10,645
10,118,324
30.66
April
393,788
12,660,588
311,663
10,389
9,661,668
31.00Nov.
4,507,185
159,218,460
3,500,393
10,449
120,053,553
34.30
May
398,862
13,815,254
317,854
10,253
10,534,772
33.14
June
432,235
15,124,648
344,729
11,491
11,631,044
33.74
July
414,258
14,411,409
324,108
10,455
10,817,829
33.38
August
437,516
16,400,730
333,756
10,766
12,196,274
36.54
September
377,861
14,557,549
297,013
9,900
11,142,685
37.52
October
408,187
17,557,812
313,249
10,105
13,107,077
41.84
November
439,794
17,892,337
329,660
10,989
13,577,287
41.19
December
410,406
15,280,713
320,586
10,341
11,689,111
36.46
2,904,996
126,573,327
2,218,494
10,465
93,408,579
42.104,583,579
221,807,148
3,441,604
10,304
160,062,321
46.51
January
416,368
15,226,958
322,803
10,413
11,410,258
35.35
February
389,832
14,947,342
296,929
10,605
10,942,242
36.85
March
420,260
17,955,052
325,979
10,515
13,410,140
41.14
April
410,265
18,941,511
313,811
10,460
14,044,645
44.76
May
418,308
18,608,834
318,630
10,278
13,726,092
43.08
June
432,053
19,928,053
328,321
10,944
14,577,503
44.40
July
417,911
20,968,576
312,022
10,065
15,297,700
49.03
August
428,305
23,181,368
325,814
10,510
17,155,252
52.65
September
388,809
23,176,557
278,453
9,282
15,961,823
57.32
October
440,383
26,161,721
304,482
9,822
17,139,812
56.29
November
421,086
22,714,175
314,361
10,479
16,396,855
52.16
2005
Jan.-Nov.
2005
Jan.-July
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Transactions in
Goods and Services. September 13, 2005January 12, 2006. Table 17.
a.Note: Energy-related petroleum products is a term used by the Census Bureau and includes crude oil,
petroleum preparations, and liquefied propane and butane gas.
CRS-5
Due to the variability in oil prices and the limited amount of data that are available
for 2005, it is not possible to provide a precise estimate of
the annual merchandise trade
deficit for 2005 that will arise as a result of the increase in oil prices so far. It seems
reasonable to assume, however, that an increase in the trade deficit in the $60 to $90
billion range would be
oil prices, but it is reasonable to assume that the trade deficit in 2005 could rise by about
$70 billion, an amount equivalent to an increase of 9% to 13at least 9% in the merchandise trade
deficit as a result ofdue to higher oil prices. In terms of the U.S. economy, the estimated rise
in the
trade deficit from the increase in oil prices is equivalent to about one-half of a percentage point
point of U.S. nominal GDP. In a letter to Congress’ Joint Economic Committee, Federal
CRS-5
Reserve Board Chairman Alan Greenspan estimated that higher energy prices since the
end of 2003 have lowered U.S. GDP by three-fourths of a percentage point in 2005 after
having reduced growth by about one-half a point in 2004.2
Crude oil comprises the largest share of energy-related petroleum products imports.
According to Census Bureau data3 as shown in Table 2, imports of crude oil rosefell from
an an
average of 10.454 million barrels of crude oil imports per day in the January-July 2004
November
2004 period to an average of 10.463 million barrels per day in the January-July 2005 period, or
an increase of about 1November 2005
period, or a decrease of 0.9 %. At the same time, the average price of crude oil increased from
from $28.57 per barrel in January 2004 to $49.0352.16 per barrel in JulyNovember 2005 for an
increase of
about 72 83%. As a result, the value of U.S. energy-related imports rose from about
$11.5
6 billion a month in January 2004 to about $2123 billion a month in JulyNovember 2005,
as shown in
Figure 3. The data also indicate, however, that the average prices for crude
oil can vary
considerably from month to month, depending on a range of factors.
Figure 3. Value of U.S. Imports of Energy-Related Petroleum
Products
$21
Billions of dollars
Petroleum Products
Billions of dollars
$27
$26
$25
$24
$23
$22
$21
$20
$19
$18
$17
$16
$15
$14
$13
$12
$11
Jan
Mar May
Jly
Sep
Nov
Jan
Mar May
Jly
Feb
Apr
Jun
Aug
Oct
Dec
Feb
Apr
Jun
Source: Department of Commerce
2004
2005
Issues For Mar May Jly Sep Nov Jan Mar May Jly Sep Nov
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct
Source: Department of Commerce
2004
2005
2
Aversa, Jeannine, “Oil Prices Said to Slow U.S. Economy a Bit.” The Washington Post, July
18, 2005.
3
Report FT900, U.S. International Trade in Goods and Services, January 12, 2006. Table 17.
CRS-6
Issues for Congress
The rise in prices of energy imports experienced since early 2004 is expected to have
a relatively minor impact on the rate of economic growth through the remainder of the
year, but could pose a number of policy issues for Congress. The impact of the rise in
energy import prices so far could become more pronounced if such prices continue to rise
at the rapid rate experienced in the late spring-early summer period of 2005. Most
2
Aversa, Jeannine, “Oil Prices Said to Slow U.S. Economy a Bit.” The Washington Post, July
18, 2005.
3
Report FT900, U.S. International Trade in Goods and Services, September 13, 2005. Table
17.
CRS-6
immediately, the higher prices of energy imports will worsen the Nationnation’s merchandise
trade deficit and have a disproportionate impact on the energy-intensive sectors of the
economy and on households on fixed incomes. The full impact of such price increases
on the trade deficit will be more fully understood once it is known how high and how
rapidly they have climbed through the remainder of the year.
Over the long run, a sustained increase in the prices of energy imports will
permanently increase the Nationnation’s merchandise trade deficit, although some of this impact
could be offset if some of the dollars are returned to the U.S. economy through increased
purchases of U.S. goods and services or through purchases of such other assets as
securities or U.S. businesses. Also, over the long-run it is possible for the economy to
adjust to the higher prices of energy imports by improving its energy efficiency, finding
alternative sources of energy, or searching out additional supplies of energy.
For Congress, the increase in the Nationnation’s merchandise trade deficit could add to
existing pressures to examine the causes of the deficit and to address the underlying
factors that are generating that deficit. In addition, the rise in prices of energy imports
could add to concerns about the Nationnation’s reliance on foreign supplies for energy imports
and add impetus to examining the Nationnation’s energy strategy. The increased outflow of
dollars may well add to public and Congressional concerns about foreign acquisitions of
U.S. firms and to concerns about the growing share of outstanding U.S. Treasury
securities that are owned by foreigners. While the rise in energy prices can be expected
to lead eventually to improvements in energy efficiency and to alternative sources of
energy, there may well be increased pressure applied to Congress to assist in this process.