Order Code RS22204
Updated January 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
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 $70 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
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 fluctuated 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 2005 and 2006, 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
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
1 Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods
and Services, January 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].

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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 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. From January-November 2007, the quantity of energy-related petroleum
imports fell by 1.7% compared with the comparable period in 2006, while crude oil
imports fell by 1.5% 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 rose by 6.1%, 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. As Figure 1 shows, imports of energy-related petroleum
products can vary sharply on a monthly basis, but averaged about 407 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 November
2006
2007
Percent
Percent
Quantity
Value
Quantity
Value
change
change
(thousands
(thousands of
(thousands
(thousands of
2006 to
2006 to
of barrels)
dollars)
of barrels)
dollars)
2007
2007
Total energy-
related 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)
Percent
Percent
Quantity
Value
Quantity
Value
change
change
(thousands
(thousands of
(thousands
(thousands of
2006 to
2006 to
of barrels)
dollars)
of barrels)
dollars)
2007
2007
Total energy-
related Petroleum
Products
4,880,734
$290,923,833
4,797,140
-1.7% $308,703,423
6.1%
Crude oil
3,734,229
$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, January 11, 2007. Table 17.
Note: Estimates for January through December of 2007 were developed by CRS from data through eleven
months of 2007 and data through 2006 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 $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 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
Billions of dollars
$34
$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.
Table 2. U.S. Imports of Energy-Related Petroleum Products,
Including Crude Oil (not seasonally adjusted)
Total energy-related
petroleum productsa
Crude oil
Period
Quantity
Value
Quantity
Thousands of
Value
Unit
(thousands
(thousands of (thousands
barrels per
(thousands of
price
of barrels)
dollars)
of barrels)
day (average)
dollars)
(dollars)
2006
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
2007
Jan. - Nov.
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
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.

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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, 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.
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
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
10.23 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 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
2005
2006
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, energy-
related 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
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.

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