Order Code RS22204
Updated November 14, 2006
CRS Report for Congress
Received through the CRS Web
December 13, 2006
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 20042005. 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 $80 - $100another $60 to $70 billion in 2006, depending on how sustainable is the rate of recent price
increasesthe course of energy import prices
over the remainder of 2006. 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, November 9December 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
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exports or to acquire such assets as securities or U.S. businesses, some of the negative
effects could be mitigated.
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 SeptemberOctober 2006, the quantity of imports decreased
slightly slightly
form the same period in 2005 as the volume of energy-related petroleum products
imports fell 0.29%. 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 400413 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 September
2005
Quantity
(thousands
of barrels)October
2005
2006
Value
(thousands of
dollars)
Quantity
(thousands
of barrels)
Quantity
(thousands
of barrels)
Percent
Value
change
(thousands of
2005 to
dollars)
2006
Percent
change
2005 to
2006
Total energyrelated Petroleum
Products
3,731,808
$173,700,343
3,725,851
-0.2% $227,841,360
31.2%
Crude oil
2,825,498
$126,815,316
2,836,509
0.4% $168,259,864
32.74,163,970
$199,267,665
4,125,681
-0.9% $250,156,518
25.5%
Crude oil
3,126,382
$143,726,863
3,148,267
0.7% $185,552,424
29.1%
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)
4,996,351958323
Percent
Value
change
(thousands of
2004 to
dollars)
2005
-0.2%
$319,392,9019%
$305,680,941
Percent
change
2004 to
2005
31.225.5%
Crude oil
3,754,669 $175,755,341
3,769,301
0.4% $233,193,992
32.7780,952
0.7% $226,901,422
29.1%
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods and
Services, November 9December 12, 2006. Table 17.
Note: Estimates for January through December of 2006 were developed by CRS from data through the first
nineten 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 $174199 billion in JanuarySeptemberJanuaryOctober 2005 to $228250 billion in the same period in 2006, or an increase of 31.2%. If
the the
rate of price increases experienced through SeptemberOctober 2006 hold for the year, the
value of
U.S. energy-related imports could rise to $320 - $340300-$320 billion in 2006, or more
than $80 -$100 60-$70
billion more than in 2005. As Figure 2 shows, the cost of U.S. imports
of energy-related
petroleum products has risen from about $11.518 billion per month in early
2004 2005 to more than $26
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$22 billion a month in SeptemberOctober 2006. Based on the data for 2005,
the increase in the price
of imports of total energy-related petroleum products added $70
billion to the annual U.S.
trade deficit. An estimate for 2006 indicates that an increase
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in the quantity of imports
at the current rate and if oil import prices hold in the range of
$65-$70 $60-$65 per barrel
throughout 2006, the U.S. trade deficit in energy trade could rise by
more than $80-$100 60-$70
billion to reach about $320306 billion. After rising steadily since March
2006, the average
price of oil retreated in September, falling by 5% from August 2006.
and October, to fall below the price set in October
2005. A continued decline in prices, or even a leveling out of prices, could reduce the estimated
estimated impact of oil prices on the trade deficit in 2006 below $8060 billion.
Figure 1. Quantity of U.S. Imports of Energy-Related
Petroleum Products
460
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
Sep
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug
2004
2006
2005
2006
Source: Department of Commerce
Figure 2. Value of U.S. Imports of Energy-Related Petroleum
Petroleum Products
$32
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
Sep
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug
2004
2005
2006
Source: Department of Commerce
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At an average price of over $62 per barrel in September 2006, oil prices continued
to set new records in 2006, as $59 per barrel in the January-October 2006 period, average
oil import prices are 28% higher than they were in the comparable period in 2005, as
indicated in Table 2. As a result of this sharp rise in the
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value of energy-related imports
in 2006, such imports now 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)
2005
Jan - Dec.
5,004,339
243,496,863
3,754,669
10,287
175,755,341
46.81
Jan.- Sept.
3,731,808
173,700,343
2,825,498
10,350
126,815,316
44.88
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
36.93Oct.
4,163,970
199,267,665
3,126,382
10,284
143,726,863
45.97
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
3,725,851
227,841,360
2,836,509
10,390
168,259,864
59.324,125,681
250,156,518
3,148,267
10,356
185,552,424
58.94
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
June
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
September
412413,659
25,808,397
316,591
10,553
19,792,869
62.52
October
399,830
22,315,158
311,758
10,057
17,292,560
55.47
2006
Jan. - Oct2006
Jan. - Sept.
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Transactions in
Goods and Services. November 9December 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.
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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
$8060 - $10070 billion, an amount equivalent to an increase of at least 108% in the merchandise
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 fellrose from an
an average of 10.428 million barrels of crude oil imports per day in 20042005 to an average of 10.3
10.36 million barrels per day in 2005 period, or a decrease of 1.5 %. In September2006, or an increase of about 10%. In October 2006, such
imports averaged 10.41 million barrels per day, or an increase of 144.0% over the volume
of of
such imports recorded in SeptemberOctober 2005, although the increase in oil imports based
on year-over-year data
for January-SeptemberOctober indicate that oil volumes increased by 0.4%
decreased by 0.9% in 2006 from the
respective period in 2005. From 2004 to 2005January to October 2005 to the same ten-month period
in 2006, the average price of
crude oil increased from $34.4845.97 per barrel in 2004 to $46.78 per to $58.94 per
barrel in 20052006 for an
increase of 3328%, as shown in Figure 3. As a result, the value of
U.S. energy-related
imports rose from about $11.618 billion a month in January 2004March 2005 to about $21
$22 billion a
month in December 2005October 2006. In September and October 2006, crude oil prices
retreated from the rise
experienced throughout much of 2006 and fell to about $62 per barrel, or an increase of
9% over the price of a barrel of oil in September 2005. As a result, the cost of total
energy imports rose to $35.8 billion in September 2006.55 per
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
Sep
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug
2004
2006
2005
Source: Department of Commerce
barrel, or a decrease of 1.3% from the price of a barrel of oil in October 2005. As a result,
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, November 9, 2006. Table 17.
CRS-6December 12, 2006. Table 17.
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the cost of total energy imports fell to $22.3 billion in October 2006, down from the peak
of $30.5 billion a month recorded in August 2006.
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 2006, but could pose a
number of policy issues for Congress. The impact of the rise in energy import prices may
well lessen somewhat as energy prices stabilize of fall slightly for the rest of 2006. It is
likely, however, that energy prices will rise rapidly again in 2007, especially in the late
spring-early summer period of 2007. 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.