Order Code RS22204
Updated May 12June 9, 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 fallen slightly. The
combination of sharply rising prices and a slightly lower level of imports of energyrelated petroleum products translates into an escalating cost for those imports. This
rising cost added an estimated $70 billion to the nation’s trade deficit in 2005 and could
add about $80-$100 billion in 2006, depending on how sustainable is the rate of 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, the price increases of imported energyrelated petroleum products worsened 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
andthat 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, May 12June 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 2005 and for 2006. 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 through MarchApril 2006, the quantity of imports decreased slightly
form the same period in 2005, for a decrease in the volume of total energy-related
petroleum products imports of 2.83.3%. 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 and about 400 barrels a month in 2006.
Table 1. Summary Data of U.S. Imports of Energy-Related
Petroleum Products, Including Oil (not seasonally adjusted)
January through MarchApril
2005
Quantity
(thousands
of barrels)
Total energyrelated Petroleum
Products
Crude oil
2006
Value
(thousands of
dollars)
Quantity
(thousands
of barrels)
Percent
Value
change
(thousands of
2005 to
dollars)
2006
Percent
change
2005 to
2006
1,226,459
$48,129,352
1,192,492
-2.8%
$64,835,087
34.7%
945,710
$35,762,639
906,323
-4.2%
$47,690,720
33.4Total energyrelated Petroleum
Products
1,638,875
$67,219,962
1,584,651
-3.3%
$88,231,593
31.3%
Crude oil
1,258,919
$49,838,700
1,200,167
-4.7%
$64,386,332
29.2%
January through December
2005
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
5,000,235
$243,181,966
4,927,725
-1.5%
$349,108,588
43.6834,797
-3.3%
$319,195,840
31.3%
Crude oil
3,753,088
$175,563,018
3,596,316577,937
-4.2%
$246,312,636
40.37%
$226,808,861
29.2%
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods and
Services, May, 12June 9, 2006. Table 17.
Note: Estimates for January through December of 2006 were developed by CRS from data through the first
threefour months of 2006 and data through 2005 published by the Census Bureau using a straight line
extrapolation.
In value terms, energy-related imports rose from over $4867 billion in January-MarchApril
2005 to $6588 billion in the same period in 2006, or an increase of 34.731.3%. If the rate of
price increases experienced through MarchApril 2006 hold for the year, the value of U.S.
energy-related imports could rise to $350320 - $340 billion in 2006, or more than $100 80-$100
billion more
than in 2005. As Figure 2 shows, the cost of U.S. imports of energy-related petroleum
petroleum products has risen from about $11.5 billion per month in early 2004 to about $22
$23 billion
a month in MarchApril 2006, down from athe record $26 billion a month in October
2005. Based
on the data for 2005, the increase in the price of imports of total energy-related petroleum
CRS-3
CRS-3
related petroleum products added $70 billion to the annual U.S. trade deficit. An estimate
for 2006
indicates that an increase in the quantity of imports at the current rate and if oil import
import prices hold in the range of $6570 per barrel throughout 2006, the U.S. trade deficit
in energy
trade could rise by more than $80-$100 billion to reach over $350about $340 billion. This
estimate could
be higher if oil prices fluctuate higher during the year, as they did in 2005.
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 Jan Mar
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr
2004
2005
2006
Source: Department of Commerce
Figure 2. Value of U.S. Imports of Energy-Related Petroleum
Products
Billions of dollars
$27
$26
$25
$24
$23
$22
$21
$20
$19
$18
$17
$16
$15
$14
$13
$12
$11U.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 Mar
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr
2004
2005
2006
Source: Department of Commerce
CRS-4
At an average price of $50 per barrel in December 2005, oil prices had moderated
slightly from the average price of $57 per barrel reached in September 2005, as indicated
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 at times accounted 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
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
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
Jan-Dec.
5,000,235
243,181,966
3,753,088
10,282
175,563,018
46.78
Jan.-Mar.
1,226,459
48,129,352
945,710
10,508
35,762,639
37.82Apr.
1,638,875
67,219,962
1,258,919
10,491
49,838,700
39.59
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
1,192,492
64,835,087
906,323
10,070
47,690,720
52.62584,651
88,231,593
1,200,167
10,001
64,386,332
53.65
January
415,788
22,579,751
302,812
9,768
15,724,715
51.93
February
378,721
20,738,047
291,032
10,394
15,635,550
53.72
March
397,983
21,517,289
312,479
10,080
16,330,455
52.26
April
392,159
23,396,506
293,844
9,795
16,695,611
56.82
2005
2006
Jan. - MarApr.
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Transactions in
Goods and Services. May 12June 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.
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Due to the variability in oil prices, it is not possible to provide a precise estimate of
the annual merchandise trade deficit for 2006 that will arise as a result of the increase in
oil prices, but it is reasonable to assume that the trade deficit in 2006 could rise by about
$80-$100 billion, an amount equivalent to an increase of at least 10% 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
a percentage point of U.S. nominal GDP. In a letter to Congress’ Joint Economic
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 2004 to an average of 10.3
million barrels per day in 2005 period, or a decrease of 1.5 %. In MarchApril 2006, such
imports were 10.1 imports
were 9.8 million barrels per day, or a decline of 6.4% from the volume of such
imports imports
recorded in MarchApril 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% 33%, as shown
in Figure 3. As a result, the value of U.S. energy-related imports rose from about $11.6 billion
billion a month in January 2004 to about $21 billion a month in December 2005, as shown in
Figure 3. In March In April
2006, oil prices resumed the rise experienced throughout much of
2005 and rose to over $52
$56 per barrel, or an increase of 27% over the price of a barrel of oil in April oil in March
2005.
Figure 3. 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 Mar
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr
2004
2006
2005
Source: Department of Commerce
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, May 12June 9, 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 in 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.
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.