Order Code RS22204
Updated November 13, 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 rose sharply in the first half of 2008, at one time reaching more
than $140 per barrel of crude oil. Since July, however, petroleum prices and import
volumes have fallen at a historically rapid pace; in November, prices of crude oil fell
below $55 per barrel. At the same time the average monthly volume of imports of
energy-related petroleum products fell slightly. The sharp rise in the cost of energy
imports added an estimated $50 billion to the nation’s trade deficit in 2006 and another
$28 billion in 2007. The fall in the cost of energy imports combined with the drop in
import volumes as a result of the slowdown in economic activity has reversed the trend
of rising energy imports costs and will sharply reduce the overall costs of U.S. energy
imports for the rest of 2008. 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 first half of 2008 rose sharply, generally rising
considerably faster than the change in demand for those products, before falling at a
historic rate. As a result, the price increases of imported energy-related petroleum
products worsened the U.S. trade deficit in 2006 and 2007, and will 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 slowdown in the rate of growth in the U.S. economy is sharply reducing the amount
1 Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods
and Services,
November 13, 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
of energy that the country imports and is helping to push down world energy prices. and,
in isolation from other events, is placing upward 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, the U.S. trade deficit could be mitigated
further.
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-September period of 2008, the quantity of energy-related
petroleum imports fell by 5.0% compared with the comparable period in 2007; crude oil
imports also fell by 3.5% from the same period in 2007. Year-over-year, the average
value of energy-related petroleum products imports rose by 59.7%, while the average
value of crude oil imports rose by 68.3%. As Figure 1 shows, imports of energy-related
petroleum products can vary sharply on a monthly basis, but averaged about 383 million
barrels a month in the January-September period of 2008.
Table 1. Summary Data of U.S. Imports of Energy-Related
Petroleum Products, Including Oil (not seasonally adjusted)
January through September
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
3,630,774
$224,920,339
3,447,564
-5.0% $359,098,607 59.7%
Crude oil
2,777,290
$165,683,917
2,685,517
-3.3% $278,727,007
68.2%
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
4,807,811
$318,822,423
4,565,207
-5.0% $509,018,831
59.7%
Crude oil
3,690,568
$237,211,653
3,568,617
-3.3% $399,056,802
68.2%
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods and
Services,
November 13, 2008. Table 17.
Note: Estimates for January through December of 2008 were developed by CRS from data through
September 2008 and data through 2007 published by the Census Bureau using a straight line extrapolation.

CRS-3
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 July 2008 and did not follow previous trends
of falling during the winter months. As Figure 2 shows, the cost of U.S. imports of
energy-related petroleum products has risen from about $17 billion per month in early
2007 to $53 billion a month in July 2008, but fell to $36 billion in September 2008,
reflecting the drop in the price of imported oil. The average price of imported oil in
September 2008 was up 57% from the average price in September 2008, but down 13.7%
from the average price in July 2008, reflecting the decrease in the price of imported oil
in August and September, 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
Sep
Nov
Jan
Mar May
Jly
Sep
Nov
Jan
Mar May
Jly
Sep
Oct
Dec
Feb
Apr
Jun
Aug
Oct
Dec
Feb. Apr
Jun
Aug
2006
2007
2008
Source: Department of Commerce
Figure 2. Value of U.S. Imports of Energy-Related
Petroleum Products
Billions of dollars
$52
$48
$44
$40
$36
$32
$28
$24
$20
$16
Sep
Nov
Jan
Mar May
Jly
Sep
Nov
Jan
Mar May
Jly
Sep
Oct
Dec
Feb
Apr
Jun
Aug
Oct
Dec
Feb
Apr
Jun
Aug
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.
4,807,811 $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
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
May
373,287
40,360,232
293,995
9,484
31,245,288
106.28
June
382,675
45,207,376
297,532
9,918
34,850,146
117.13
July
424,467
52,813,717
342,024
11,033
42,637,563
124.66
August
388,679
46,012,928
308,380
9,948
37,000,980
119.99
September
339,044
36,179,838
253,276
8,443
27,247,205
107.58
Source: Census Bureau, Department of Commerce. Report FT900, U.S. International Transactions in
Goods and Services.
November 13, 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 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-September 2008, the trade deficit in energy-related imports amounted to $313
billion, or 49% of the total U.S. trade deficit of $642 billion for the nine-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 rose by about 10% in 2007 above that for

CRS-5
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 commodity
prices, had increased the overall rate of inflation in the economy; however, such concerns
have been eclipsed by the slowdown in the rate of growth in the economy.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

Sep
Nov
Jan
Mar May
Jly
Sep
Nov
Jan
Mar May
Jly
Sep
Oct
Dec
Feb
Apr
Jun
Aug
Oct
Dec
Feb
Apr
Jun
Aug
2006
2007
2008
Source: Department of Commerce
Data for the January-September 2008 period indicate that a number of factors
combined to push oil prices to record levels in July 2008. The sharp rise in prices
combined with a small decrease in the volumes of oil imports experienced 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 would have
a significant impact on the overall costs of U.S. imports and on the value of the U.S. trade
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, November 13, 2008. Table
17.

CRS-6
deficit. Since those record prices, the price per barrel of imported crude oil has fallen to
under $55 per barrel in November 2008. With an expected decrease in the volumes of
energy-related petroleum products imports for the remainder of 2008 due to a slowdown
in economic activity and at an average price of $90 per barrel, assuming that imported
energy prices remain low in December 2008, energy-related import prices could add about
$90 billion to the trade deficit on an annual basis, pushing the annual trade deficit to
nearly $900 billion.
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, is likely to have a slightly negative impact on the rate
of economic growth in 2008, and poses 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.