Order Code RS22204
Updated AugustSeptember 12, 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 continued to rise sharply in 2008, at one time reaching more
than $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 energy-related petroleum
products translates into an escalating cost for those imports. This rising cost added an
estimated $50 billion to the nation’s trade deficit in 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 risen sharply, generally 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 2006 and 2007, 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
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, August 12September 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
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 2007 and for 2008. The data indicate that the United States
imported 4.8 billion barrels of total energy-related petroleum products in 2007, valued at
$319 billion. In the January-JuneJuly period of 2008, the quantity of energy-related petroleum
imports fell by 5.13.7% compared with the comparable period in 2007; crude oil imports also
fell by 31.5% from the same period in 2007. Year-over-year, the average value of energyrelated petroleum products imports rose by 5964%, while the average value of crude oil
imports rose by 6774%. As Figure 1 shows, imports of energy-related petroleum products
can vary sharply on a monthly basis, but averaged about 382390 million barrels a month in
the January-JuneJuly period of 2008.
Table 1. Summary Data of U.S. Imports of Energy-Related
Petroleum Products, Including Oil (not seasonally adjusted)
January through JuneJuly
2007
2008
Value
(thousands of
dollars)
Quantity
(thousands
of barrels)
Quantity
(thousands
of barrels)
Percent
Value
change
(thousands of
2007 to
dollars)
2008
Percent
change
2007 to
2008
Total energyrelated Petroleum
Products
2,418,187
$140,831,337
2,295,373
-5.1% $224,092,124
59.1%
Crude oil
1,846,740
$102,973,352
1,781,837
-3.5% $171,841,260
66824,464
$168,587,079
2,719,841
-3.7% $276,905,841
64.3%
Crude oil
2,157,296
$123,335,329
2,123,861
-1.5% $214,478,822
73.9%
January through December
2007
2008
(Actual values)
(Estimated values)
Quantity
(thousands
of barrels)
Total energyrelated Petroleum
Products
4,807,811
Value
(thousands of
dollars)
$318,822,423
Quantity
(thousands
of barrels)
4,563,634629,721
Percent
Value
change
(thousands of
2007 to
dollars)
2008
-5.1% $507,313,1843.7% $523,668,787
Percent
change
2007 to
2008
59.164.3%
Crude oil
3,690,568 $237,211,653
3,560,864
-3.3% $395,857,264
66633,369
-1.5% $412,508,539
73.9%
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods and
Services, August 12September 11, 2008. Table 17.
Note: Estimates for January through December of 2008 were developed by CRS from data through JuneJuly
2008 and data through 2007 published by the Census Bureau using a straight line extrapolation.
In value terms, energy-related imports rose from about $291 billion in 2006 to $319
in 2007, or an increase of 9.6% to account for about 17% of the value of total U.S.
merchandise imports. Data for 2008 indicate that the sharp rise experienced in energy
prices in 2007 continued in January through JuneJuly 2008, not following previous trends of
falling during the winter months. As Figure 2 shows, the cost of U.S. imports of energyrelatedenergy-
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related petroleum products has risen from about $17 billion per month in early 2007 to
$4553 billion a month in JuneJuly 2008. The average price of imported oil in JuneJuly 2008 was up
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92
90% from the average price in June 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
Petroleum Products
450
440
430
420
410
400
390
380
370
360
350
340
330
Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb. Apr Jun
Jly Sep Nov Jan Mar May Jly Sep Nov Jan Mar May
Millions of barrels
Jly Sep Nov Jan Mar May Jly Sep Nov Jan Mar May Jly
Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb. Apr Jun
2006
2008
2007
Source: Department of Commerce
Figure 2. Value of U.S. Imports of Energy-Related Petroleum
Products
Billions of dollars
$46
$44
$42
$40
$38
$36
$34
$32
$30
$28
$26
$24
$22
$20
$18
$16
Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun
Jly Sep Nov Jan Mar May Jly Sep Nov Jan Mar May52
$48
$44
$40
$36
$32
$28
$24
$20
$16
Jly Sep Nov Jan Mar May Jly Sep Nov Jan Mar May Jly
Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun
2006
2007
2008
Source: Department of Commerce
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Table 2. U.S. Imports of Energy-Related Petroleum Products,
Including Crude Oil
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(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)
2007
Jan.- Dec.
4,807,811 $318,822,423
3,690,568
10,111 $237,211,653
$64.28
January
419,828
22,065,916
321,272
10,364
16,763,529
52.18
February
334,586
17,471,845
256,750
9,170
13,001,677
50.64
March
418,262
23,186,425
318,783
10,283
16,941,702
53.15
April
404,329
24,344,989
305,965
10,199
17,514,576
57.24
May
427,007
27,038,265
322,212
10,394
19,128,841
59.37
June
414,174
26,723,896
321,757
10,725
19,623,027
60.99
July
406,277
27,755,742
310,556
10,018
20,361,977
65.57
August
414,665
28,897,623
317,585
10,245
21,647,893
68.16
September
391,646
27,435,637
302,410
10,080
20,700,725
68.45
October
404,808
30,039,497
315,071
10,164
22,869,846
72.59
November
389,483
31,771,542
300,371
10,112
23,990,094
79.87
December
382,745
32,091,045
297,836
9,608
24,667,796
82.82
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
April
388,145
38,185,528
303,050
10,102
29,339,760
96.81
May
373,287
40,360,232
293,995
9,484
31,245,288
106.28
2008
June
June
382,675
45,207,376
297,532
9,918
34,850,146
117.13
117.13
2008
July
424,467
52,813,717
342,024
11,033
42,637,563
124.66
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Transactions in
Goods and Services. August 12September 11, 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 2007, the trade
deficit of such imports rose to $293 billion to account for 36% of the total $815 billion
U.S. trade deficit, up from one-fifth of the total trade deficit in less than two years. In
January-JuneJuly 2008, the trade deficit in energy-related imports amounted to $201246 billion,
or 4749% of the total U.S. trade deficit of $426502 billion for the sixseven-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 roerose by about $28 billion10% in 2007 above
that for
2006, largely as a result of the continued rise in the prices of imported energy in
the the
October-December period of 2007. In testimony before Congress, Federal Reserve
Board Board
Chairman Ben Bernanke indicated that the rise in oil prices, along with other commodity
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commodity prices, likely would increase the overall rate of inflation in the economy, an
important 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 10.23 million barrels of crude oil imports per day in 2006 to an average of
10.15 million barrels per day in 2007, or a decrease of 1.2%. In December 2007, such
imports averaged 9.7 million barrels per day, or an increase of 2.5% over the volume of
such imports recorded in December 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 June
2007 to June 2008, the average price of crude oil increased from $61 per barrel to $117
per barrel for an increase of 92%, as shown in Figure 3. As a result, the value of U.S.
crude oil imports rose from about $19 billion a month in June 2007 to $35 billion a month
in June 2008.
Figure 3. U.S. Import Price of Crude Oil
Dollars per barrel$125
$120
$115
$110
$105
$100
$95
$90
$85
$80
$75
$70
$65
$60
$55
$50
$45
Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun
Jly Sep Nov Jan Mar May Jly Sep Nov Jan Mar May
Dollars per barrel
Jly Sep Nov Jan Mar May Jly Sep Nov Jan Mar May Jly
Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun
2006
2007
2008
Source: Department of Commerce
Data for the January-JuneJuly 2008 period indicate that a number of factors combined
to to
push oil prices to record levels.. The sharp rise in prices combined with a small
decrease decrease
in the volumes of oil imports experienced in May combined to post a large jump
in the overall
cost of imported energy. At times, crude oil traded for nearly $148 per
barrel in July
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 $130 per barrel, energy-related import prices could add nearly $250
billion to the trade deficit on an annual basis, pushing the annual trade deficit to over $1 Since those record
prices, the price per barrel of imported crude oil has fallen to nearly $100 per barrel in
September 2008. With current expected volumes of energy-related petroleum products
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, JulySeptember 11, 2008. Table 17.
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17.
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imports and at an average price of $120 per barrel, energy-related import prices could add
nearly $216 billion to the trade deficit on an annual basis, pushing the annual trade deficit
to nearly $1 trillion. With current expected volumes of energy-related petroleum products
imports and
at an average price of $140130 per barrel, energy-related import prices could add $300
$260 billion
to the annual trade deficit. Similarly, at a price of $150140 per barrel, energy-relatedenergyrelated import
prices could add more than $340300 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. Some 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.