Order Code RS22204
Updated January 20March 17, 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 risenfallen slightly. The
combination of sharply rising prices and a slightly higherlower level of imports of energyrelated petroleum products translates into an escalating cost for those imports. This
rising cost could addadded an estimated $70 billion to the nation’s trade deficit in 2005,
and could
add more than $70 billion in 2006, 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 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-relatedenergyrelated petroleum products will worsenworsened the U.S. trade deficit in 2005.
and likely will do so
again in 2006. 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
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 12March 9, 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 eleven months of 2005. Based on the
data for the January through November 2005 period, estimates are provided for the values
for the full year2005. The data indicate that the United States
imported 5.0 billion barrels of total energy-related petroleum products in 2005, valued at
$243 billion. In January 2006, imports decreased slightly form the same period in 2005,
for a decrease in the volume of total energy-related petroleum products imports of 0.1%.
As Figure 1 shows, imports of energy-related petroleum products can vary sharply on a
monthly basis, but averaged about 417 barrels a month in 2005.
Table 1. Summary Data of U.S. Imports of Energy-Related
Petroleum Products, Including Oil (not seasonally adjusted)
January through November
2004
2005
Value
(thousands of
dollars)
Quantity
(thousands
of barrels
2005
Quantity
(thousands
of barrels)
2006
Value
(thousands of
dollars)
Quantity
(thousands
of barrels)
Percent
Value
change
(thousands of
20042005 to
dollars)
20052006
Percent
change
2004 to
20052005 to
2006
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
33.3416,368
$15,226,958
415,788
-0.1%
$22,579,751
48.3%
Crude oil
322,803
$11,410,258
302,812
-6.2%
$15,724,715
37.8%
January through December
2004
20052005
2006
(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
5,000,941
1.7%
$243,094,701
39.3%
Crude oil
3,820,979
$131,742,664
3,756,806
-1.7%
$175,646,918
33.35,000,235
$243,181,966
4,993,270
-0.1%
$360,609,666
48.3%
Crude oil
3,753,088
$175,563,018
3,520,661
-6.2%
$241,947,064
37.8%
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods and
Services, January 12March 9, 2006. Table 17.
Note: Estimates for January through December of 20052006 were developed by CRS from data through the first
eleven months ofmonth of 2006 and data through 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
November period, imports increased from a total of 4.5 billion barrels in 2004 to 4.6
billion barrels in 2005, for an increase in the volume of total energy-related petroleum
products imports 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 in 2004 and 417 barrels a month from January to November 2005.
In value terms, energy-related imports in the January-November period rose from
over $159 billion in 2004 to $222 billion in 2005, or an increase of 39.3%. As Figure 2
In value terms, energy-related imports rose from over $174 billion in 2004 to $243
billion in 2005, or an increase of 39.3%. If the price increases experienced through
January 2006 hold for the year, the value of U.S. energy-related imports could rise to $360
billion in 2006. As Figure 2 shows, the cost of U.S. imports of energy-related petroleum products has risen from about
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
products has risen from about $11.5 billion per month in early 2004 to over $2622 billion
a month in November 2005.
January 2006. Based on the data for the January-November 2005 period, imports 2005, the increase in the price of 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 $243 billion from the $174
billion spent in 2004 on such imports, or an increase in the U.S. trade deficit by an
estimated $70 billion due to the increase in oil prices. This estimate of the value of
energy-related petroleum products imports is based on petroleum products added $70 billion to the U.S. trade deficit. An
estimate for 2006 indicates that an increase in the quantity of
imports at the current rate and on prices at the November 2005 level. This estimate could
be higher as a result of fluctuations in oil prices that occurred in early December. If oil
imports at the current rate
and if oil import prices hold in the range of $60 per barrel throughout 2006, the U.S. trade deficit
deficit in energy trade could rise by another $50more than $70 billion to reach over $300 billion. This
CRS-3
estimate could be higher if oil prices fluctuate higher during the year, as they did in 2005.$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 Nov1. 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 Jan
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec
2004
2005
2005
Source: Department of Commerce
2004
2005
CRS-4
At an average price of $5250 per barrel in NovemberDecember 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 indicated
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 Jan
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec
2004
2006
2005
Source: Department of Commerce
in Table 2. As a result of this sharp rise in the value of energy-related imports, in 2005,
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 accountat times accounted for half of the overall U.S.
trade deficit.
CRS-4
Table 2. U.S. Imports of Energy-Related Petroleum Products,
Including Crude Oil (not seasonally adjusted)
Total energy-related
petroleum products a
Period
Quantity
Value
(thousands (thousands of
of barrels)
dollars)
Crude oil
Quantity
(thousands
of barrels)
Thousands of
Value
Unit
barrels per (thousands of
price
day (average)
dollars)
(dollars)
2004
Jan.- Dec.
4,917,591 $174,499,173
3,820,979
10,440 $131,742,664
$34.48
Jan.- Nov.
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
4,583,579
221,807,148
3,441,604
10,304
160,062,321
46.515,000,235
243,181,966
3,753,088
10,282
175,563,018
46.78
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
December
416,656
21,374,818
311,484
10,048
15.500,697
49.76
415,788
22,579,751
302,812
9,768
15,724,715
51.93
2005
Jan.-Dec.
2006
January
2005
Jan.-Nov.
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Transactions in
Goods and Services. January 12March 9, 2006. Table 17.
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, it is not possible to provide a precise estimate of
the annual merchandise trade deficit for 20052006 that will arise as a result of the increase in
oil prices, but it is reasonable to assume that the trade deficit in 20052006 could rise by about
more
than $70 billion, an amount equivalent to an increase of at least 98% in the merchandise trade
trade deficit due to higher oil prices. In terms of the U.S. economy, the estimated rise in the
the trade deficit from the increase in oil prices in 2005 is equivalent to about one-half of
a percentage
point of U.S. nominal GDP. In a letter to Congress’ Joint Economic
CRS-5
Committee, Federal
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 fell from an
average of 10.4 million barrels of crude oil imports per day in the January-November
2004 period2004 to an average of 10.3
million barrels per day in the January-November 2005
2005 period, or a decrease of 0.9 %. At the same time, the average price of crude oil increased
from $28.57 per barrel in January 2004 to $52.16 per barrel in November 2005 for an
increase of 832 %. In January 2006, such
imports fell to 9.8 million barrels per day, or a decline of 6% from the volume of such
imports recorded in January 2005. From 2004 to 2005, the average price of crude oil
increased from $34.48 per barrel in 2004 to $46.78 per barrel in 2005 for an increase of
33%. As a result, the value of U.S. energy-related imports rose from about
$11.6 billion
a month in January 2004 to about $2321 billion a month in NovemberDecember 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. In January 2006, oil prices resumed the rise experienced throughout much of
2005 and rose to $52 per barrel, or an increase of 47% over the price of oil in January
2005.
Figure 3. Value of U.S. Imports of Energy-Related
Petroleum 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 Sep Nov Jan
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec
2004
2005
2005
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 12March 9, 2006. Table 17.
CRS-6
Issues forFor 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
yearin 2005, 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 in 2006 if such prices continue to rise
at the rapid rate
experienced in the late spring-early summer period of 2005. Most
immediately, the
higher prices of energy imports will worsen the nation’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.
households on fixed incomes.
Over the long run, a sustained increase in the prices of energy imports will
permanently increase the nation’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 nation’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 nation’s reliance on foreign supplies for energy imports
and add impetus to examining the nation’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.