Order Code RS22204
Updated June 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 continued 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 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, 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 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
1 Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods
and Services, June 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].

---

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-April period of 2008, the quantity of energy-related
petroleum imports fell by 1.8% compared with the comparable period in 2007; crude oil
imports also fell by 2.4% from the same period in 2007. Year-over-year, the average
value of energy-related petroleum products imports rose by 59%, while the average value
of crude oil imports rose by 64.7%. As Figure 1 shows, imports of energy-related
petroleum products can vary sharply on a monthly basis, but averaged about 401 barrels
a month in the January-December period of 2007.
Table 1. Summary Data of U.S. Imports of Energy-Related
Petroleum Products, Including Oil (not seasonally adjusted)
January through April
2007
2008
Percent
Percent
Quantity
Value
Quantity
Value
change
change
(thousands
(thousands of
(thousands
(thousands of
2007 to
2007 to
of barrels)
dollars)
of barrels)
dollars)
2008
2008
Total energy-
related Petroleum

Products
1,577,006
$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
2007
2008

(Actual values)
(Estimated values)
Percent
Percent
Quantity
Value
Quantity
Value
change
change
(thousands
(thousands of
(thousands
(thousands of
2007 to
2007 to
of barrels)
dollars)
of barrels)
dollars)
2008
2008
Total energy-
related Petroleum
Products
4,808,832
$318,873,367
4,694,192
-2.4% $507,318,214
59.1%
Crude oil
3,690,924
$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, June 10, 2008. Table 17.
Note: Estimates for January through December of 2008 were developed by CRS from data through April
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 April 2008, not following previous trends of
falling during the winter months. As Figure 2 shows, the cost of U.S. imports of energy-

---

CRS-3
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
2007
2008
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

---

CRS-4
Table 2. U.S. Imports of Energy-Related Petroleum Products,
Including Crude Oil (not seasonally adjusted)
Total energy-related
petroleum products a
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)
2007
Jan.- 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
December
386,751
32,390,228
300,841
9,705
24,896,124
82.76
2008
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
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Transactions in
Goods and Services. June 10, 2008. 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.
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-April 2008, the trade deficit in energy-related imports amounted to $132 billion,
or 47% of the total U.S. trade deficit of $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 roe by about $28 billion in 2007 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 testimony before Congress, Federal Reserve
Board Chairman Ben Bernanke indicated that the rise in oil prices, along with other

---

CRS-5
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 10.23 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 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 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. 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.

---