U.S. Trade Deficit and the Impact of
Changing Oil Prices
James K. Jackson
Specialist in International Trade and Finance
June 15, 2011
Congressional Research Service
7-5700
www.crs.gov
RS22204
CRS Report for Congress
P
repared for Members and Committees of Congress
U.S. Trade Deficit and the Impact of Changing Oil Prices
Summary
Petroleum prices have risen sharply since September 2010, at times reaching more than $112 per
barrel of crude oil. Although this is still below the $140 per barrel price reached in 2008, the
rising cost of energy is beginning to affect the rate of growth in the economy. While the price of
oil has increased sharply, the volume of oil imports, or the amount of oil imported, has actually
increased slightly. This resistance by market demand to changes in prices reflect the unique nature
of the demand for oil and an increase in economic activity that has occurred since the worst part
of the economic recession in 2009. Turmoil in the Middle East has been an important factor
causing petroleum prices to rise sharply in the first four months of 2011, which could add as
much as $100 billion to the U.S. trade deficit in 2011. The increase in energy import prices is
pushing up the price of energy to consumers and could spur some elements of the public to
pressure the 112th Congress to provide relief to households that are struggling to meet their
current expenses. With oil prices rising to over $100 per barrel in early 2011, the International
Energy Agency cautioned that the rising price of oil was becoming a threat to the global
economic recovery. This report provides an estimate of the initial impact of the changing oil
prices on the nation’s merchandise trade deficit.
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U.S. Trade Deficit and the Impact of Changing Oil Prices
Contents
Background ................................................................................................................................ 1
Issues for Congress ..................................................................................................................... 6
Figures
Figure 1. Quantity of U.S. Imports of Energy-Related Petroleum Products .................................. 3
Figure 2. Value of U.S. Imports of Energy-Related Petroleum Products ....................................... 4
Figure 3. U.S. Import Price of Crude Oil ..................................................................................... 6
Tables
Table 1. Summary Data of U.S. Imports of Energy-Related Petroleum Products, Including
Oil (not seasonally adjusted) .................................................................................................... 2
Table 2. U.S. Imports of Energy-Related Petroleum Products, Including Crude Oil (not
seasonally adjusted) ................................................................................................................. 4
Contacts
Author Contact Information ........................................................................................................ 7
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U.S. Trade Deficit and the Impact of Changing Oil Prices
Background
According to data published by the Census Bureau of the Department of Commerce,1 the prices
of petroleum products during the first four months of 2011 rose sharply, generally rising faster
than the change in demand for those products, similar to the experience in 2008. In 2008,
however, after reaching nearly $140 per barrel, prices fell at a historic rate.2 After falling each
month between August 2008 and February 2009, average petroleum prices reversed course and
rose by 85% between February and December 2009, climbing to nearly $80 per barrel at times. In
2010, petroleum prices reached a peak average price of about $77 per barrel in April before
falling to around $72 per barrel in July 2010. Average prices dropped from May to July, one of
only three times average monthly petroleum prices have declined since January 2009. In
December 2010, petroleum import prices averaged nearly $80 per barrel and continued to
increase, reaching over $112 per barrel at times in March and April 2011. Oil futures contracts
indicate, however, that crude oil prices are expected to peak at the $100 per barrel range before
falling to under $90 per barrel by mid-fall 2011. Turmoil in the Middle East, natural disasters, and
even oil refining problems associated with the flooding Mississippi river, however, could have a
significant impact on the course of oil prices for the foreseeable future. As a result of changing
petroleum prices, the price changes in imported energy-related petroleum products worsened the
U.S. trade deficit in 2006-2008, 2010, and likely will again in 2011.3 Energy-related petroleum
products is a term used by the U.S. 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.
In 2009, the slowdown in the rate of growth in the U.S. economy reduced the amount of energy
the country imported and helped push down world energy prices. Since then, economic growth
has improved, energy imports have increased, and energy prices have risen. In isolation from
other events, lower energy prices tend to aid the U.S. economy, which makes it a more attractive
destination for foreign investment. Such capital inflows, however, place 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.
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 2010 and
estimated values for 2011 are presented in Table 1. The data indicate that during 2010, the United
States imported about 4.3 billion barrels of energy-related petroleum products, valued at $323
billion. On average, energy-related imports for 2010 were up 0.3% in volume terms from the
average in 2009 and cost an average of 31% more than similar imports during the same period in
2009. These data demonstrate that U.S. demand for oil imports is highly resistant to changes in
oil prices. According to various studies, U.S. demand for oil is correlated more closely to U.S. per
1 U.S. Department of Commerce, U.S. Census Bureau, Report FT900, U.S. International Trade in Goods and Services,
Table 17, June 9, 2011. The report and supporting tables are available at http://www.census.gov/foreign-trade/Press-
Release/current_press_release/ftdpress.pdf.
2 For information about the causes of the run up in oil prices see Hamilton, James, Causes and Consequences of the Oil
Shock of 2007-2008, Brookings Papers on Economic Activity, Spring 2009.
3 For additional information about U.S. oil imports see CRS Report R41765, U.S. Oil Imports: Context and
Considerations, by Neelesh Nerurkar.
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U.S. Trade Deficit and the Impact of Changing Oil Prices
capital income than to changes in oil prices.4 Estimates for 2011 indicate that with the average
price of around $100 per barrel, U.S. imported petroleum costs could rise by nearly $100 billion
in 2011 to reach $408 billion.
Table 1. Summary Data of U.S. Imports of Energy-Related Petroleum Products,
Including Oil (not seasonally adjusted)
January - April
2010
2011
Quantity
Value ($
Quantity
% change
% change
(millions of
2010 to
Value ($ billions)
2010 to
barrels)
billions)
(millions of barrels)
2011
2011
Total energy-
related
1,379.7 $104.3
1,383.3 0.3% $130.1 24.7%
petroleum
products
Crude oil
1,080.9
$80.7
1,080.4
-0.0%
$99.3
23.0%
January through December
2010
2011
(Actual values)
(Estimated values)
Quantity
% change
% change
Value ($
Quantity
(millions of
billions)
(millions of barrels)
2010 to
Value ($ billions)
2010 to
barrels)
2011
2011
Total energy-
related
petroleum
4,,278.5 $323.6
4,289.6 0.3% $403.5 24.7%
products
Crude oil
3,377.7
$252.2
3,376.3
-0.0%
$310.3
23.0%
Source: U.S. Department of Commerce, U.S. Census Bureau, Report FT900, U.S. International Trade in Goods
and Services, Table 17, June 9, 2011.
Note: Estimates for January through December 2011 were developed by CRS from data in January 2011 and
data through 2010 published by the Census Bureau using a straight line extrapolation.
The data also indicate that in 2009, the quantity of energy-related petroleum imports fell by 4.0%
compared with the comparable period in 2008; crude oil imports also fell by 2.7% from the same
period in 2008. Year-over-year, the average value of energy-related petroleum products imports
fell by 44% in 2009, while the average value of crude oil imports fell by 45%. As Figure 1
shows, imports of energy-related petroleum products can vary sharply on a monthly basis. In
2010, imports of energy-related petroleum products averaged about 356 million barrels per
month.
4 Hamilton, Causes and Consequences of the Oil Shock of 2007-2008; World Economic Outlook, Chapter 3,
International Monetary Fund, April 2011. According to the IMF, for developed economies, a 10% increase in oil prices
is estimated to result in a 0.2% decrease in oil consumption, but a 10% increase in income leads to a 6.8% increase in
oil consumption.
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U.S. Trade Deficit and the Impact of Changing Oil Prices
Figure 1. Quantity of U.S. Imports of Energy-Related Petroleum Products
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2011
Source: Department of Commerce.
In value terms, energy-related imports fell from a total value of $439 billion in 2008 to $245
billion in 2009, or a decrease of 44%, to account for about 16% of the value of total U.S.
merchandise imports. Energy prices rose sharply in 2007 and continued rising from January
through July 2008, not following previous trends of falling during the winter months. The cost of
U.S. imports of energy-related petroleum products rose from about $17 billion per month in early
2007 to $53 billion a month in July 2008, but fell to $13.6 billion a month in February 2009,
reflecting a drop in the price and in the volume of imported oil. The average price of imported oil
in April 2011 was $103 per barrel, an increase of 34% over the average price per barrel of $77 in
April 2010. As Figure 2 shows, the value of total energy imports (reflecting the change in the
amount of imports and the change in the price of those imports) in April 2011 fell 2% from March
2011 to $35 billion, but up nearly 22% from the total value of energy imports in April 2010, as
indicated in Table 2.
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U.S. Trade Deficit and the Impact of Changing Oil Prices
Figure 2. Value of U.S. Imports of Energy-Related Petroleum Products
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Source: Department of Commerce.
As a result of the drop in the overall value of energy-related imports in 2009, the trade deficit in
energy-related imports amounted to $204 billion, down by nearly half from the $386 billion
recorded in 2008, and accounted for 40% of the total U.S. trade deficit of $517 billion for the
year. In 2010, the rise in oil prices, year over year, combined with a slight increase in energy
imports, pushed up the overall value of energy imports, which accounted for 41% of the total
merchandise trade deficit. In April 2011, the share of the U.S. trade deficit arising from energy
imports was 45%, down from the 50% recorded in March 2011, but about equal to the share
recorded in April 2010.
Table 2. U.S. Imports of Energy-Related Petroleum Products, Including Crude Oil
(not seasonally adjusted)
Total energy-related
petroleum productsa
Crude oil
Thousands
Quantity
Quantity
of barrels
(millions of
Value
(millions of
per day
Value
Unit price
Period
barrels)
($ billions)
barrels)
(average)
($ billions)
(dollars)
2010
Jan.-Dec. 4,278.5 $323.6 3,377.7 9,254 $252.2 $74.66
Jan.-April 1,379.7 104.3
1,080.9 9,007 80.7 74.70
January 329.2 24.7 245.3 7,912 18.1 73.89
February 313.3 23.0 243.3 8,689 17.7 72.92
March 369.5 27.8 299.5 9,660 22.3 74.32
April
368.7 28.8 294.1 9,804 22.7 77.13
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U.S. Trade Deficit and the Impact of Changing Oil Prices
Total energy-related
petroleum productsa
Crude oil
Thousands
Quantity
Quantity
of barrels
(millions of
Value
(millions of
per day
Value
Unit price
Period
barrels)
($ billions)
barrels)
(average)
($ billions)
(dollars)
May
355.3 27.6 280.0 9,033 21.5 76.93
June 382.2
28.0
311.9
10,398
22.6
72.44
July 388.7
28.4
311.7
10,056
22.5
72.09
August 392.8 29.2 306.9 9,900 22.5 73.47
September
364.7 26.6 289.7 9,656 21.0 72.36
October 330.7 25.0 254.5 8,209 18.9 74.18
November
323.6 25.2 258.2 8,606 19.8 76.81
December
359.8 29.2 262.6 9,115 22.5 79.78
2011
Jan.-April 1,383.3 130.1
1,080.4 9,003 99.3 91.95
January 375.3 32.2 290.7 9,376 24.5 84.34
February 307.3 27.2 242.4 8,656 21.1 87.17
March 371.4 35.7 295.1 9,520 27.7 93.76
April
329.2 35.0 252.2 8,408 26.0
103.18
Source: U.S. Department of Commerce, U.S. Census Bureau, Report FT900, U.S. International Trade in Goods
and Services, Table 17, June 9, 2011.
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.
Crude oil comprises the largest share of energy-related petroleum products imports. According to
Census Bureau data,5 imports of crude oil fell from an average of 9.8 million barrels of crude oil
imports per day in 2008 to an average of 9.1 million barrels per day in 2009, or a decrease of 7%.
In April 2011, such imports averaged 8.4 million barrels per day, or a decrease of about 12% from
the volume of such imports recorded in March 2011 and down 14% from April 2010. From
January 2008 to June 2008, the average price of crude oil increased from $84 per barrel to $117
per barrel, or an increase of 39%. As a result, the value of U.S. crude oil imports rose from about
$27 billion a month in January 2008 to $35 billion a month in June 2008. In 2010, crude oil
imports averaged 281 million barrels per month at an average value of $21 billion a month. Oil
import prices in 2010 rose from about $74 per barrel in January 2010 to an average of $79.78 in
December 2010. As shown in Figure 3, oil import prices rose steadily between September 2010
and April 2011, the latest month for detailed data.
5 Report FT900, U.S. International Transactions in Goods and Services, Table 17, June 9, 2011.
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U.S. Trade Deficit and the Impact of Changing Oil Prices
Figure 3. U.S. Import Price of Crude Oil
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Source: Department of Commerce.
Data for 2009 indicate that a number of factors, primarily the economic recession, had a large
impact on pushing down oil prices in the first three months. As economic growth picked up, the
higher demand for oil tended to raise pressure on oil prices, which rose through the end of the
year. The rise in oil prices and an increase in the volumes of oil imports during the period
combined to raise 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 size of the U.S. trade deficit. Since those record
prices, the price per barrel of imported crude oil fell to under $40 per barrel at times in January
and February 2009. For the year 2009, the imported volume of energy-related petroleum products
fell by 44% compared with 2008, due in large part to a slowdown in economic activity. At an
average price of $56 per barrel in 2009, compared with an average price of $95 per barrel in
2008, energy-related imports fell by nearly $130 billion as a component in the overall U.S. trade
deficit. For 2010, the total cost of energy imports rose to $323 billion at an average price of $75
per barrel and accounted for 41% of the annual trade deficit. Estimates for 2011 indicate that an
average price of imported energy of about $100 per barrel, the total cost of energy imports could
rise to $400 to $425 billion, or nearly $100 billion more than the cost of energy imports in 2010.
Issues for Congress
The rise in the prices of energy imports experienced since early 2010 through April 2011 could
have a significant impact on the annual U.S. trade deficit in 2011, should those price increases
stick, or run even higher. The rise in energy prices may well affect the U.S. rate of inflation and
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U.S. Trade Deficit and the Impact of Changing Oil Prices
could have a slightly negative impact on the rate of economic growth in 2011. Various factors,
dominated by the political turmoil in the Middle East and the rate of economic growth in Asia and
other developing economies, have combined to push up the cost of energy imports, which will
have a slightly negative impact on the pace of the economic recovery. Typically, energy import
prices have followed a cyclical pattern as energy prices rose in the summer and declined in the
winter. The slowdown in the rate of economic growth in the United States and elsewhere in 2009
sharply reduced the demand for energy imports and caused oil prices to tumble from the heights
they reached in July 2008. An important factor that often affects crude oil prices is the impact
Atlantic hurricanes have on the production of crude oil in the Gulf of Mexico.
The return to a positive rate of economic growth has placed upward pressure on the prices of
energy imports and contributed to the nation’s merchandise trade deficit. Some of the impact of
this deficit could be offset if some of the dollars that accrue abroad are returned to the U.S.
economy through increased purchases of U.S. goods and services or through purchases of such
other assets as corporate securities or acquisitions of U.S. businesses. Some of the return in
dollars likely will come through sovereign wealth funds, 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.
Social turmoil in the Middle East is creating uncertainty in the oil markets and pushing up prices.
The duration and intensity of the turmoil likely will continue to be the most important factor
driving oil prices. As was the case in 2008, high and sustained oil prices likely will have a
detrimental effect on the pace of economic growth in many parts of the world. It is possible for
the economy to adjust over the long term to the higher prices of energy imports by improving its
energy efficiency, finding alternative sources of energy, or searching out additional supplies of
energy. Higher oil prices may well cause consumers to increase pressure on 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 reduce the governments’ budget deficit
and to stimulate the economy should the rate of economic growth stall. 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 slow 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.
Author Contact Information
James K. Jackson
Specialist in International Trade and Finance
jjackson@crs.loc.gov, 7-7751
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