Order Code RS22204
Updated May 30, 2007January 15, 2008
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
amountmonthly volume of imports of energy-related petroleum products has fallen slightly. The
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 $50
billion in 2006. Imported energy prices moderated in January and Februaryearly 2007, but
beganbefore rising again in March and April
through the summer and more sharply in the fall, following a pattern of rising energy
import 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 fluctuated sharply, at times rising
considerably faster than the
change in demand for those products. As a result, the price
increases of imported energyrelatedenergy-related petroleum products worsened the U.S. trade deficit
in 2005 and 2006. Energyrelated , and will do so again in 2007, although modestly. Energy-related
petroleum products is a term used by the Census Bureau that includes crude oil,
petroleum 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 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 are
1
Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods
and Services, May 10, 2007January 11, 2008. Table 17. The report and supporting tables are available at
[http://www.census.gov/foreign-trade/Press-Release/current_press_release/ftdpress.pdf].
CRS-2
such 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.
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 2006 and for 2007. The data indicate that the United States
imported 4.9 billion barrels of total energy-related petroleum products in 2006, valued at
$291 billion. Through MarchFrom January-November 2007, the quantity of energy-related petroleum
imports fell
by 1.7% by 1.7% compared with the comparable period in 2006, while crude oil
imports fell by 1.05% from the same period in 2006, reflecting
a milder-than-normal winter
in 2007. During the same eleven-month period, the average value of energy-related
petroleum products imports fell by 3.3rose by 6.1%, while the average value of crude oil imports fell by
2.0%
rose by 5.7%. At these rates, the value of U.S. energy imports for 2007 would be slightly
higher than those for 2006. As Figure 1 shows, imports of energy-related petroleum
products can vary sharply
on a monthly basis, but averaged about 410 barrels a month in 2006407 barrels a month in
2006 and about 402 barrels a month in the January-November period of 2007.
Table 1. Summary Data of U.S. Imports of Energy-Related
Petroleum Products, Including Oil (not seasonally adjusted)
January through March
2006
Quantity
(thousands
of barrels)
Total energyrelated Petroleum
Products
Crude oilNovember
2006
2007
Value
(thousands of
dollars)
Quantity
(thousands
of barrels)
Quantity
(thousands
of barrels)
Percent
Value
change
(thousands of
20052006 to
dollars)
20062007
Percent
change
2005 to
2006
1,192,492
$64,835,087
1,172,648
-1.7%
$62,724,590
-3.3%
906,323
$47,690,720
897,225
-1.0%
$46,730,174
-2.02006 to
2007
Total energyrelated Petroleum
Products
4,499,138
$269,983,312
4,422,080
-1.7% $286,483,138
6.1%
Crude oil
3,440,583
$200,818,503
3,390,083
-1.5% $212,321,512
5.7%
January through December
2006
2007
(Actual values)
(Estimated values)
Quantity
(thousands
of barrels)
Total energyrelated Petroleum
Products
4,887,772880,734
Value
(thousands of
dollars)
$291,285,295290,923,833
Quantity
(thousands
of barrels)
4,806,436797,140
Percent
Value
change
(thousands of
20042006 to
dollars)
20052007
-1.7% $281,803,442308,703,423
Percent
change
2004 to
2005
-92006 to
2007
6.1%
Crude oil
3,741,205 $216,998,507
3,703,649
-1.0% $212,627,907
-5.8734,229 $216,627,331
3,679,419
-1.5% $229,035,880
5.7%
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods and
Services, May 10January 11, 2007. Table 17.
Note: Estimates for January through December of 2007 were developed by CRS from data through the first
three eleven
months of 2007 and data through 2006 published by the Census Bureau using a straight line
extrapolation. extrapolation.
CRS-3
Figure 1. Quantity of U.S. Imports of Energy-Related
Petroleum Products
Millions of barrels
450
440
430
420
410
400
390
380
370
360
350
340
330
Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct
Sep Nov Jan Mar May Jly Sep Nov Jan Mar May Jly Sep Nov
2005
2006
2007
Source: Department of Commerce
In value terms, energy-related imports rose from about $243 billion in 2005 to $291
billion in 2006, or an increase of 19.6% to account for about 16% of the value of total
U.S. merchandise imports. An estimate for 2007, based on data for the first three months
of 2007, indicate a sloweleven months of
2007, indicates that there was a slower start to the seasonal rise in energy prices, compared with the
CRS-3
Figure 1. Quantity of U.S. Imports of Energy-Related
Petroleum Products
Millions of barrels
460
450
440
430
420
410
400
390
380
370
360
350
340
330
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
2005
2006
2007
Source: Department of Commerce
sharp rise experienced in
compared with the sharp rise experienced in the spring of 2005 and 2006. Price data for April and May
the April-November period of 2007, however,
show a sharp run-up in the price of
imported energy in those months and likely will exert
considerable upward pressure on forthcoming estimates of the total cost of energy imports
for 2007. As Figure 2 , which has continued into December 2007, compared
with price data for 2006. In 2006, oil import prices peaked in August. 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 $23 billion in March 2007. Data for 2006 indicate that a slight decrease in the
quantity of imports combined with nearly a 20% increase in the price of imported energy
products caused the U.S. trade deficit in energy to rise 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 2006.31 billion in November
Figure 2. Value of U.S. Imports of Energy-Related Petroleum
Petroleum Products
$3234
Billions of dollars
$32
$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
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec FebAug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct
Sep Nov Jan Mar May Jly Sep Nov Jan Mar May Jly Sep Nov
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 deficit2007. The average price of imported oil in November 2007 was up 52% from the average
price in November 2006, reflecting the continued run-up in imported oil prices in 2007,
as indicated in Table 2.
Table 2. U.S. Imports of Energy-Related Petroleum Products,
Including Crude Oil (not seasonally adjusted)
Total energy-related
petroleum products aproductsa
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)
2006
Jan. - Dec.
4,887,772
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
January
418,158
22,010,536
320,108
10,326
16,720,818
52.23
February
331,818
17,347,440
252,869
9,031
12,822,771
50.71
March
422,671
23,366,614
324,248
10,460
17,186,586
53.00
2007
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Transactions in
Goods and Services. May 10, 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.
880,734 $290,923,833
3,734,229
10,231 $216,627,331
$58.01
Jan. - Nov.
4,499,138
269,983,312
3,440,583
10,301
200,818,503
58.37
August
440,997
29,872,301
336,528
10,856
22,255,220
66.13
September
413,902
25,786,512
316,381
10,546
19,740,688
62.40
October
395,656
22,055,963
308,602
9.955
17,119,687
55.47
November
380,813
20,208,933
299,010
9,967
15,615,178
52.22
December
381,597
20,940,521
293,645
9,472
15,808,828
53.84
4,422,080
286,483,138
3,390,083
10,150
212,321,512
62.63
January
418,158
22,010,536
320,108
10,326
16,720,818
52.23
February
331,818
17,347,440
252,869
9,031
12,822,771
50.71
March
422,671
23,366,614
324,248
10,460
17,186,586
53.00
April
402,043
24,238,490
304,775
10,159
17,456,146
57.28
May
426,026
26,934,778
320,208
10,329
19,006,138
59.36
June
413,312
26,654,260
321,260
10,709
19,580,491
60.95
July
406,427
27,769,362
310,320
10,010
20,344,172
65.56
August
416,130
28,988,603
319,197
10,297
21,733,947
68.09
September
387,135
27,146,183
297,503
9,917
20,383,148
68.51
October
405,860
30,079,622
316,184
10,199
22,919,110
72.49
November
392,500
31,947,251
303,411
10,114
24,168,187
79.65
2007
Jan. - Nov.
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Transactions in
Goods and Services. January 11, 2008. Table 17.
a. Energy-related petroleum products is a term used by the Census Bureau and includes crude oil, petroleum
preparations, and liquefied propane and butane gas.
As a result of the overall rise in the value of energy-related imports in 2006, the trade
deficit of such imports rose to $270 billion to account for 32% of the total $836 billion
U.S. trade deficit, up from one-fifth of the total trade deficit in less than two years. In the
January-November 2007 period, the trade deficit in energy-related imports amounted to
$261 billion, or 35% of the total U.S. trade deficit of $744 billion. The oil-related deficit
in November, however, accounted for 41% of the U.S. trade deficit for that month, the
highest share recorded since 1998.
CRS-5
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 about 7% inof the merchandise
trade deficit due to higher oil prices. As long as the quantity of energy imports for the rest
of 2007 remains below the quantity experienced in 2006, the total price of U.S. energy
imports likely will be about $20 billion above that for 2006, as a result of the rise in the
prices of imported energy in the October-December period of 2007. In terms of the U.S.
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
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 a percentage point of U.S. nominal GDP. In testimony
before Congress, Federal Reserve Board Chairman Ben Bernanke indicated that the rise
in oil prices, along with other commodity prices, likely would increase the overall rate of
inflation in the economy, an important consideration in policy-making by the Federal
Reserve.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 10.28 million barrels of crude oil imports per day in 2005 to an average of
10.2523 million barrels per day in 2006, or a decrease of less than one percent. In December
2006, such imports averaged 9.5 million barrels per day, or a decrease of 6.6% from the
volume of such imports recorded in December 2005. Overall, data for crude oil imports based
on year-over-year
based on January through November data indicate that oil volumes had decreased by 0.4% in 2006 from the
respective period in 20051.5%
in 2007 from the comparable period in 2006. From 2005 to 2006, the average price of
crude oil increased
from $46.81 per barrel to $58.00 per barrel for an increase of 24%, 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 $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.
since July 2005.
Figure 3. U.S. Import Price of Crude Oil
Dollars per barrel
$80
$78
$76
$74
$72
$70
$68
$66
$64
$62
$60
$58
$56
$54
$52
$50
$48
$46
$44
Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct
Sep Nov Jan Mar May Jly Sep Nov Jan Mar May Jly Sep Nov
2006
2005
2007
Source: Department of Commerce
2
Bernanke, Ben, The Economic Outlook, Testimony Before the Joint Economic Committee, U.S.
Congress, November 8, 2007.
3
Report FT900, U.S. International Trade in Goods and Services, January 11, 2008. Table 17.
CRS-6
Data for 2007 indicate that a milder-than-normal winter reduced crude oil imports
through March 2007 July 2007 compared with comparable data for 2006 and average oil import prices,
which had dropped nearly 4% from
the average prices recorded in January 2007, started
rising inafter March. The declines in
prices and volumes of oil imports experienced in January and February, however, likely
will turn around sharply in April and May, when both import volumes and import prices
started moving higher.
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 Nov Jan Mar
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb
2005
2006
2007
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 10, 2007. Table 17.
CRS-6
January and February, turned around in the April to September period, although import
volumes continue to lag behind those recorded for the comparable period in 2006. Data
for October and preliminary data for November and December 2007 presage higher
energy-related imports costs in those months. Average crude oil prices in October 2007
were nearly 40% higher than in January 2007. Also, on November 8, 2007, crude oil
traded for a record high of over $98 per barrel in world markets, before falling back to
about $91 per barrel the following week.4 At an average price of $80 per barrel, energyrelated import prices could add as much as $100 billion to the U.S. trade deficit in 2008
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 as rapidly again in 2007, especially in the late
spring-early summer period of 2007. Most immediately, the higher prices of energy
An important factor is the impact Atlantic
hurricanes have on the production of crude oil in the Gulf of Mexico Most immediately,
higher prices for 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.
4
Wong, Gillian, Oil Prices Rebound in Asian Trading, The Washington Post. November 14,
2007.