Order Code RS22204
Updated December 13, 2006March 15, 2007
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 2005. 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 another $60 to $70 billion in 2006, depending on the course of energy import prices
over the remainder of 2006$50
billion in 2006. Imported energy prices moderated in January 2007, but began rising
again in February and March, following a pattern of rising prices in the spring and
summer. 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-related2006. Energyrelated 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
1
Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods
and Services, December 12, 2006March 9, 2007. Table 17. The report and supporting tables are available at
[http://www.census.gov/foreign-trade/Press-Release/current_press_release/ftdpress.pdf].
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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 20052006 and for 20062007. The data indicate that the United States
imported 5.04.9 billion barrels of total energy-related petroleum products in 20052006, valued at
$243291 billion. In January through October 20062007, the quantity of imports decreased slightly
form the same period in 2005 as the volumeenergy-related petroleum imports increased
by 0.6%, while crude oil imports rose by nearly 6.0% over the same period in 2006.
During the same period, the value of energy-related petroleum products
imports fell 0.9by
2.5%, while the value of crude oil imports increased by 6.3%. 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 413410 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 October
2005
2006
Value
(thousands of
dollars)
Quantity
(thousands
of barrels
2006
Quantity
(thousands
of barrels)
2007
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
4,163,970
$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
29.1415,788
$22,579,751
418,158
0.6%
$22,010,536
-2.5%
Crude oil
302,812
$15,724,715
320,108
5.7%
$16,720,818
6.3%
January through December
2005
20062006
2007
(Actual values)
(Estimated values)
Quantity
(thousands
of barrels)
Total energyrelated Petroleum
Products
5,004,3394,887,772
Value
(thousands of
dollars)
$243,496,863291,285,295
Quantity
(thousands
of barrels)
4,958323915,632
Percent
Value
change
(thousands of
2004 to
dollars)
2005
-0.9%
$305,680,9410.6%
$283,942,257
Percent
change
2004 to
2005
25-2.5%
Crude oil
3,754,669 $175,755,341
3,780,952
0.7% $226,901,422
29.1741,205 $216,998,507
3,954,895
5.7% $230,744,566
6.3%
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods and
Services, December 12, 2006March 9, 2007. Table 17.
Note: Estimates for January through December of 20062007 were developed by CRS from data through the first
ten months of 2006month of 2007 and data through 20052006 published by the Census Bureau using a straight line
extrapolation.
In value terms, energy-related imports rose from about $199243 billion in JanuaryOctober 2005 to $250 291
billion in the same period in 2006, or an increase of 31.2%. If the
rate of price increases experienced through October 2006 hold for the year, the value of
U.S. energy-related imports could rise to $300-$320 billion in 2006, or more than $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 $18 billion per month in early 2005 to more than
CRS-3
$22 billion a month in October 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 in the quantity of imports
at the current rate and if oil import prices hold in the range of $60-$65 per barrel
throughout 2006, the U.S. trade deficit in energy trade could rise by more than $60-$70
billion to reach about $306 billion. After rising steadily since March 2006, the average
price of oil retreated in September 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 impact of oil prices on the trade deficit in 2006 below $60 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
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct
2006
2005
Source: Department of Commerce
Figure 2. Value of U.S. Imports of Energy-Related
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
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct
2005
2006
Source: Department of Commerce
CRS-4
At an average price of $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 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
19.6% to account for about 16% of the value of total
U.S. merchandise imports. An estimate for 2007, based only on data for January,
indicates that the cost of imported energy will fall slightly in 2007, compared with the
sharp rise experienced in 2005 and 2006. Price data for February and early March 2007,
however, show a sharp run-up in the price of imported energy in those months and likely
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will alter the estimates for the total cost of energy imports for 2007. As Figure 2 shows,
the cost of U.S. imports of energy-related petroleum products has risen from about $15
billion per month in early 2005 to more than $30 billion a month in August 2006, before
falling back to $20 billion a month in December 2006 and $22 billion in January 2007.
Data for 2006 indicate that because of a slight decrease in the quantity of imports
combined with nearly a 20% increase in the price of imported energy products, the U.S.
trade deficit in energy trade rose by about $50 billion to reach nearly $300 billion. After
rising steadily since March 2006, the average price of oil retreated in September through
November before rising slightly again in December 2006.
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
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec
2005
2006
2007
Source: Department of Commerce
Figure 2. Value of U.S. Imports of Energy-Related 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
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec
2005
2006
2007
Source: Department of Commerce
CRS-4
At an average price of $58 per barrel in 2006, average oil import prices are 24%
higher than they were in the comparable period in 2005, as indicated in Table 2. As a
result of the overall rise in the value of energy-related imports in 2006, such imports now
account for about 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)
2005
Jan - Dec.
5,004,339
243,496,863
3,754,669
10,287
175,755,341
46.81
Jan.- Oct.
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
4,125,681
250,156,518
3,148,267
10,356
185,552,424
58.944,887,772
291,285,295
3,741205
10,250
216,998,507
58.00
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
413,659
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
November
381,230
20,238,356
299,401
9,980
15,642,961
52.25
December
380,861
20,890,421
293,538
9,469
15,803,122
53.84
418,158
22,010,536
320,108
10,326
16,720,818
52.23
2006
Jan. - Dec.
2007
January
2006
Jan. - Oct.
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Transactions in
Goods and Services. December 12, 2006March 9, 2007. 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
$60 - $70
Recent data indicate that the drop in imported energy prices to about $54 per barrel
toward the end of 2006 from the high of an average of $66 per barrel reached in August
2006 helped reduce the overall cost of energy imports so that the trade deficit in 2006 rose
by about $50 billion, an amount equivalent to an increase of at least 8about 7% 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
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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 rosefell from
an an
average of 10.28 million barrels of crude oil imports per day in 2005 to an average of
10.3625 million barrels per day in 2006, or an increase of about 10%. In October 2006, such
a decrease of less than one percent. In December
2006, such imports averaged 10.19.5 million barrels per day, or an increase of 4.0% over the volume of
a decrease of 6.6% from the
volume of such imports recorded in October 2005, althoughDecember 2005. Overall, data for oil imports based
on year-over-year data
for January-October indicate that oil volumes decreased by 0.94% in 2006 from the
respective period in 2005. From January to October 2005 to the same ten-month period
in2005 to 2006, the average price of crude oil increased
from $45.9746.81 per barrel to $58.94 per
barrel in 200600 per barrel for an increase of 2824%, as shown in Figure
3. As a result, the value of
U.S. energy-related imports rose from about $18 billion a
month in March 2005 to about
$22 billion a month in October 2006. In September and October 2006, crude oil prices
retreated from the rise experienced throughout much of 2006 and fell to about $55 per $30 billion a month in September 2006, before falling to
$21 billion a month in December 2006, the lowest monthly total recorded since July 2005.
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
Jan Mar May Jly
Sep Nov Jan Mar May Jly
Sep
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct
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, December 12, 2006. Table 17.
CRS-6
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. Sep Nov Jan
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec
2005
2006
2007
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 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
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, March 9, 2007. Table 17.
CRS-6
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.
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