Order Code RS22204
Updated JulyOctober 13, 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 $8085 - $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
that 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, JulyOctober 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 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 MayAugust 2006, the quantity of imports decreased slightly
form the same period in 2005 as the volume of energy-related petroleum products
imports fell 2.00.9%. 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 MayAugust
2005
Quantity
(thousands
of barrels)
2006
Value
(thousands of
dollars)
Quantity
(thousands
of barrels)
Percent
Value
change
(thousands of
2005 to
dollars)
2006
Percent
change
2005 to
2006
Total energyrelated Petroleum
Products
2,059,339
$85,908,535
2,018,050
-2.0% $116,137,791
35.2%
Crude oil
1,578,901
$63,612,285
1,523,994
-3.5%
32.6%
$84,379,0033,342,163
$150,367,985
3,312,192
-0.9% $202,032,963
34.4%
Crude oil
2,547,909
$110,877,090
2,519,917
-1.1% $148,466,996
33.9%
January through December
2005
2006
(Actual values)
(Estimated values)
Quantity
(thousands
of barrels)
Total energyrelated Petroleum
Products
5,004,339
Value
(thousands of
dollars)
$243,496,863
Quantity
(thousands
of barrels)
4,904,004959,462
Percent
Value
change
(thousands of
2004 to
dollars)
2005
-2.0%
$329,177,8610.9%
$327,160,018
Percent
change
2004 to
2005
35.234.4%
Crude oil
3,754,669 $175,755,341
3,624,099
-3.5% $233,132,019
32.6713,419
-1.1% $235,340,479
33.9%
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods and
Services, JulyOctober 12, 2006. Table 17.
Note: Estimates for January through December of 2006 were developed by CRS from data through the first
fiveeight 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 about $86150 billion in January-May
JanuaryAugust 2005 to $116202 billion in the same period in 2006, or an increase of 35.234.4%. If the
rate of
price increases experienced through MayJuly 2006 hold for the year, the value of U.S. energyrelated
energy-related imports could rise to $320325 - $340 billion in 2006, or more than $8085 -$100 billion
billion more than in 2005. 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 about
$28more
than $30 billion a month in MayAugust 2006, the highest monthly amount recorded so far.
Based on
the data for 2005, the increase in the price of imports of total energy-related petroleum
petroleum products added $70 billion to the annual U.S. trade deficit. An estimate for 2006
CRS-3
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 $65-$70 per barrel throughout 2006, the U.S. trade
deficit in
energy trade could rise by more than $8085-$100 billion to reach about $340
billion. This
estimate could be higher if oil prices continue to trend upward during the
year, as they did
in 2005.
Figure 1. Quantity of U.S. Imports of Energy-Related
Petroleum Products
450460
Millions of barrels
450
440
430
420
410
400
390
380
370
Jan Mar May Jly Sep Nov Jan Mar May Jly Sep Nov Jan Mar May Jly
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug
2004
2005
2006
Source: Department of Commerce
Figure 2. Value of U.S. importsImports of Energy-Related Petroleum
Products
$3032
Billions of dollars
$30
$28
$26
$24
$22
$20
$18
$16
$14
$12
$10
Jan Mar May Jly Sep Nov Jan Mar May Jly Sep Nov Jan Mar May Jly
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug
2004
2005
2006
Source: Department of Commerce
At an average price of over $6066 per barrel in May 2006, oil prices exceeded the
previous record of $57 per barrel reached in September 2005August 2006, oil prices continued to set
new records in 2006, as indicated in Table 2. As
a result of this sharp rise in the value
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of energy-related imports in 2006, such imports now
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account for over one-third account for nearly 40% 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
Jan2005
Jan - Dec.
5,004,339
243,496,863
3,754,669
10,287
175,755,341
46.81
Jan.- May
2,059,339
85,908,535
1,578,901
10,456
63,612,285
40.29Aug.
3,342,163
150,367,985
2,547,909
10,485
110,877,090
43.52
January
419,291
15,301,289
325,786
10,509
11,491,026
35.27
February
387,899
14,907,930
293,425
10,479
10,835,581
36.93
March
418,418
17,923,939
324,180
10,457
13,383,428
41.28
April
413,267
19,086,805
315,528
10,518
14,128,664
44.78
May
420,464
18,688,573
319,982
10,322
13,773,585
43.04
June
430,594
19,878,379
327,865
10,929
14,559,106
44.41
July
419,157
21,046,507
312,106
10,068
15,314,485
49.07
August
433,073
23,534,564
329,039
10,614
17,391,215
52.85
September
389,645
23,332,358
277,589
9,253
15,938,226
57.42
October
432,162
25,567,322
300,884
9,706
16,911,547
56.21
November
422,459
22,790,054
314,028
10,468
16,380,931
52.16
December
417,910
21,439,144
314,259
10,137
15.647,547
49.79
2,018,050
116,137,791
1,523,994
10,093
84,379,003
53.373,312,192
202,032,963
2,519,917
10,370
148,466,996
58.92
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
May
433,399
27,906,197
323,827
10,446
19,992,671
61.74
2005
2006
Jan. - MayJune
420,067
26,958,936
330,862
11,029
20,527,259
62.04
July
423,624
28,438,931
321,576
10,373
20,849,998
64.84
August
450,451
30,497,305
343,485
11,080
22,710,736
66.12
2006
Jan. - Aug.
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Transactions in
Goods and Services. JulyOctober 12, 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.
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
CRS-5
oil prices, but it is reasonable to assume that the trade deficit in 2006 could rise by about
$8085 - $100 billion, an amount equivalent to an increase of at least 10% in the merchandise
CRS-5
trade deficit due to higher oil prices. In terms of the U.S. economy, the estimated rise in
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
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 MayJuly 2006, such imports
rose toaveraged 10.4 million barrels per day, or an increase of 1.23.0% over the volume of such
imports recorded in MayJuly 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 shown in Figure 3. As a result, the value of U.S. energy-related imports rose
from about $11.6 billion a month in January 2004 to about $21 billion a month in
December 2005,. In MayAugust 2006, oil prices resumed the rise experienced throughout much
much of 2005 and rose to over $6166 per barrel, or an increase of 4325% over the price of a barrel
barrel of oil in MayAugust 2005. As a result, the cost of total energy imports rose to $27.9 30.5
billion in
May August 2006.
Figure 3. U.S. Import Price of Crude Oil
Dollars per barrel
$68
$66
$64
$62
$60
$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 May Jly
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug
2004
2006
2005
Source: Department of Commerce
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
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, July 12, 2006. Table 17.
CRS-6October 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 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.