Order Code RS22204
Updated January 15June 10, 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 2005continued to rise sharply in 2008, at one time reaching
nearly $140 per barrel of crude oil. At the same time the average
monthly volume of
imports of energy-related petroleum products has fallen slightly.
The combination of
sharply rising prices and a slightly lower level of imports of energyrelatedenergy-related petroleum
products translates into an escalating cost for those imports. This
rising cost added an
estimated $7050 billion to the nation’s trade deficit in 2005 and $50
billion in 2006. Imported energy prices moderated in early 2007, before rising again
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
2006 and another $28 billion in
2007. The prices of energy imports have been on a steady rise since summer of 2007,
defying the pattern of declining energy import prices in the fall. 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 fluctuatedrisen sharply, at times rising
considerably faster than the change in demand for those products. As a result, the price
increases of imported energy-related petroleum products worsened the U.S. trade deficit
in 20052006 and 2006, and will do so again in 2007, although modestly2007, and again in 2008. 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
1
Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods
and Services, January 11June 10, 2008. 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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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 20062007 and for 20072008. The data indicate that the United States
imported 4.98 billion barrels of total energy-related petroleum products in 20062007, valued at
$291 billion. From January-November 2007319 billion. In the January-April period of 2008, the quantity of energy-related petroleum
petroleum imports fell by 1.78% compared with the comparable period in 2006, while2007; crude oil
imports also fell by 1.52.4% from the same period in 2006, reflecting a milder-than-normal winter
in 2007. During the same eleven-month period2007. Year-over-year, the average
value of energy-related
petroleum products imports rose by 6.159%, while the average value
of crude oil imports
rose by 5.7%. At these rates, the value of U.S. energy imports for 2007 would be slightly
higher than those for 2006. 64.7%. As Figure 1 shows, imports of energy-related petroleum
petroleum products can vary sharply on a monthly basis, but averaged about 407 barrels a month in
2006 and about 402 barrels 401 barrels
a month in the January-NovemberDecember period of 2007.
Table 1. Summary Data of U.S. Imports of Energy-Related
Petroleum Products, Including Oil (not seasonally adjusted)
January through November
2006
2007April
2007
2008
Value
(thousands of
dollars)
Quantity
(thousands
of barrels)
Quantity
(thousands
of barrels)
Percent
Value
change
(thousands of
20062007 to
dollars)
20072008
Percent
change
2006 to
20072007 to
2008
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
51,577,006
$87,069,176
1,539,411
-2.4% $138,524,516
59.1%
Crude oil
1,202,770
$64,221,483
1,190,310
-1.0% $105,745,825
64.7%
January through December
2006
20072007
2008
(Actual values)
(Estimated values)
Quantity
(thousands
of barrels)
Total energyrelated Petroleum
Products
4,880,734808,832
Value
(thousands of
dollars)
$290,923,833318,873,367
Quantity
(thousands
of barrels)
4,797,140694,192
Percent
Value
change
(thousands of
20062007 to
dollars)
2007
-1.7% $308,703,4232008
-2.4% $507,318,214
Percent
change
2006 to
2007
62007 to
2008
59.1%
Crude oil
3,734,229 $216,627,331
3,679,419
-1.5% $229,035,880
5690,924 $237,217,636
3,652,688
-1.0% $390,597,872
64.7%
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods and
Services, January 11, 2007June 10, 2008. Table 17.
Note: Estimates for January through December of 20072008 were developed by CRS from data through eleven
months of 2007April
2008 and data through 20062007 published by the Census Bureau using a straight line extrapolation.
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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 $243291 billion in 2005 to $291
billion in 20062006 to $319
in 2007, or an increase of 199.6% to account for about 1617% of the value of total
U.S. merchandise imports. An estimate for 2007, based on data for eleven months of
2007, indicates that there was a slower start to the seasonal rise in energy prices,
compared with the sharp rise experienced in the spring of 2005 and 2006. Price data for
the April-November period of 2007, however, show a sharp run-up in the price of
imported energy in those months, 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 $31 billion in November
Figure 2. Value of U.S. Imports of Energy-Related
Petroleum Products
$34
Billions of dollars
$32
$30
$28
$26
$24
$22
$20
$18
$16
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
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2007. 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.
merchandise imports. Data for 2008 indicate that the sharp rise experienced in energy
prices in 2007 continued in January through April 2008, not following previous trends of
falling during the winter months. As Figure 2 shows, the cost of U.S. imports of energy-
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related petroleum products has risen from about $17 billion per month in early 2007 to
$38 billion a month in April 2008. The average price of imported oil in April 2008 was
up 69% from the average price in April 2007, reflecting the continued run-up in imported
oil prices in 2007 and 2008, as indicated in Table 2.
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
Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb. Apr
May Jly Sep Nov Jan Mar May Jly Sep Nov Jan Mar
2006
2008
2007
Source: Department of Commerce
Figure 2. Value of U.S. Imports of Energy-Related Petroleum
Products
Billions of dollars
$40
$38
$36
$34
$32
$30
$28
$26
$24
$22
$20
$18
$16
Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr
May Jly Sep Nov Jan Mar May Jly Sep Nov Jan Mar
2006
2007
2008
Source: Department of Commerce
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Table 2. U.S. Imports of Energy-Related Petroleum Products,
Including Crude Oil (not seasonally adjusted)
Total energy-related
petroleum productsaproducts 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)
20062007
Jan. - Dec.
4,880,734 $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- Dec.
4,808,832 $918,873,367
3,690,924
10,112 $237,217,636
$64.27
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.
December
386,751
32,390,228
300,841
9,705
24,896,124
82.76
January
420,916
$35,836,371
322,206
10,394
$27,093,581
$84.09
February
367,098
31,356,495
286,483
9,879
24,281,817
84.79
March
363,252
33,146,123
278,571
8,986
25,030,666
89.85
2008
April
388,145
38,185,528
303,050
10,102
29,339,760
96.81
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Transactions in
Goods and Services. January 11June 10, 2008. Table 17.
a.Note: Energy-related petroleum products is a term used by the Census Bureau and includes crude oil, petroleum
petroleum preparations, and liquefied propane and butane gas.
As a result of the overall rise in the value of energy-related imports in 20062007, the trade
deficit of such imports rose to $270293 billion to account for 3236% of the total $836815 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
January-April 2008, the trade deficit in energy-related imports amounted to
$261 $132 billion, or 35
or 47% 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.
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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% of 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, 284 billion for the four-month period.
The quantity of energy imports in 2007 fell by 1.5% below the quantity imported in
2006, but the total price of U.S. energy
imports likely will beroe by about $2028 billion in 2007 above
above that for 2006, largely as a result of the continued rise in the
prices of imported energy in
the October-December period of 2007. 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 testimony
testimony before Congress, Federal Reserve
Board Chairman Ben Bernanke indicated that the rise
in oil prices, along with other
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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 10.2823 million barrels of crude oil imports per day in 20052006 to an average of
10.2315 million barrels per day in 20062007, or a decrease of less than one percent1.2%. In December
2006 2007, such
imports averaged 9.57 million barrels per day, or a decrease of 6.6% from the
volume of an increase of 2.5% over the volume of
such imports recorded in December 2005. Overall, data for crude oil imports
based on January through November data indicate that oil volumes had decreased by 1.5%
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.
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.
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Data for 2007 indicate that a milder-than-normal winter reduced crude oil imports
through 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 after March. The declines in prices and volumes of oil imports experienced in
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. 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
2006. Data for crude oil imports in 2007 indicate that
the total quantity of imported oil decreased by 1.2% from the comparable period in 2006.
In December 2007, however, despite a 57% rise in the price of crude oil imports year over
year, average crude oil imports rose by about 2.5% from December 2006. From April
2007 to April 2008, the average price of crude oil increased from $57 per barrel to $97
per barrel for an increase of 70%, as shown in Figure 3. As a result, the value of U.S.
crude oil imports rose from about $24 billion a month in April 2007 to $38 billion a
month in April 2008.
Figure 3. U.S. Import Price of Crude Oil
Dollars per barrel
$100
$96
$92
$88
$84
$80
$76
$72
$68
$64
$60
$56
$52
$48
Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr
May Jly Sep Nov Jan Mar May Jly Sep Nov Jan Mar
2006
2007
2008
Source: Department of Commerce
Data for the January-April 2008 period indicate that a number of factors combined
to push oil prices to record levels.. The sharp rise in prices combined with a small
decrease in the volumes of oil imports experienced in April combined to post a large jump
in the overall cost of imported energy. At times, crude oil traded for nearly $140 per
barrel in June 2008, indicating that the cost of energy imports will have a significant
impact on the overall costs of U.S. imports and on the value of the U.S. trade deficit.
With current expected volumes of energy-related petroleum products imports and at an
average price of $110 per barrel, energy-related import prices could add nearly $200
2
Bernanke, Ben, The Economy and Financial Markets, Testimony Before the Banking, Housing,
and Urban Affairs Committee, U.S. Senate, February 14, 2008.
3
Report FT900, U.S. International Trade in Goods and Services, June 10, 2008. Table 17.
CRS-6
billion to the trade deficit on an annual basis, pushing the annual trade deficit to over $1
trillion. With current expected volumes of energy-related petroleum products imports and
at an average price of $120 per barrel, energy-related import prices could add $240 billion
to the annual trade deficit. Similarly, at a price of $140 per barrel, energy-related import
prices could add more than $320 billion to the annual trade deficit.
Issues for Congress
The sharp rise in prices of energy imports experienced since early 2007 is expected
to affect the U.S. rate of inflation, likely will have a slightly negative impact on the rate
of economic growth in 2008, and pose a number of policy issues for Congress. Various
factors are combining to push up the cost of energy imports to record levels at a time
when they traditionally have followed a cyclical pattern that has caused energy prices to
decline in the winter. A slowdown in the rate of economic growth in the United states in
the spring and summer likely would lessen demand for energy imports and might help
restrain the prices of energy imports. An important factor, however, will be 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, add to inflationary pressures, and have a disproportionate impact on the energyintensive 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,
2007Some of the return in dollars likely will come through
sovereign wealth funds (SWFs), or funds controlled and managed by foreign
governments, as foreign exchange reserves boost the dollar holdings of such funds. Such
investments likely will add to concerns about the national security implications of foreign
acquisitions of U.S. firms, especially by foreign governments, and to concerns about the
growing share of outstanding U.S. Treasury securities that are owned by foreigners. 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. There may well be increased pressure applied to Congress
to assist in this process
For Congress, the increase in the nation’s merchandise trade deficit could add to
existing inflationary pressures and complicate efforts to stimulate the economy should the
rate of economic growth slow down. In particular, Congress, through its direct role in
making economic policy and its oversight role over the Federal Reserve, could face the
dilemma of rising inflation, which generally is treated by raising interest rates to tighten
credit, and a slowing rate of economic growth, which is usually addressed by lowering
interest rates to stimulate investment. A sharp rise in the trade deficit may also add to
pressures for Congress 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.