U.S. Trade Deficit and the Impact of
Changing Oil Prices
James K. Jackson
Specialist in International Trade and Finance
December 13, 2011
Congressional Research Service
7-5700
www.crs.gov
RS22204
CRS Report for Congress
Pr
epared for Members and Committees of Congress
U.S. Trade Deficit and the Impact of Changing Oil Prices
Summary
Petroleum prices rose sharply between September 2010 and June 2011, 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 was one factor that helped to dampen the rate of growth in the
economy during the first half of 2011. While the price of oil was rising sharply, the volume of oil
imports, or the amount of oil imported, decreased slightly. Overall resistance by market demand
to changes in oil prices reflects the unique nature of the demand for oil and an increase in
economic activity that occurred following the worst part of the economic recession in 2009.
Turmoil in the Middle East was 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 total 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.
Congressional Research Service
U.S. Trade Deficit and the Impact of Changing Oil Prices
Contents
Background...................................................................................................................................... 1
Issues for Congress .......................................................................................................................... 7
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............................................................................................................. 8
Congressional Research Service
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 10 months of 2011 rose sharply through June 2011 before
beginning a slow decline through October 2011. Nevertheless, petroleum prices generally rose
faster than the change in demand for those products, similar to the experience in 2008. In 2008,
petroleum prices reached nearly $140 per barrel, before falling 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, April, and May 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 late 2011. Turmoil in the Middle East, natural disasters,
and hurricanes, 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. Economic growth improved
through 2010 and the first half of 2011, driving up energy imports and energy prices. 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, December 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.
Congressional Research Service
1
U.S. Trade Deficit and the Impact of Changing Oil Prices
capita 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 $90 billion in 2011
to reach $415 billion.
Table 1. Summary Data of U.S. Imports of Energy-Related Petroleum Products,
Including Oil (not seasonally adjusted)
January - October
2010
2011
Quantity
Value ($
Quantity
% change
% change
(millions of
billions)
(millions of barrels)
2010 to
Value ($ billions)
2010 to
barrels)
2011
2011
Total energy-
related
3,595.1 $269.2
3,486.3 -3.0% $351.1 30.4%
petroleum
products
Crude
oil 2,835.6 $209.7 2,779.2 -2.0% $275.4 31.3%
January through December
2010
2011
(Actual values)
(Estimated values)
Quantity
Value ($
Quantity
% change
% change
(millions of
2010 to
Value ($ billions)
2010 to
barrels)
billions)
(millions of barrels)
2011
2011
Total energy-
related
4,,279.5 $323.8
4,150.0 -3.0% $422.2 30.4%
petroleum
products
Crude
oil 3,377.7 $252.2 3,309.9 -2.0% $331.1 31.3%
Source: U.S. Department of Commerce, U.S. Census Bureau, Report FT900, U.S. International Trade in Goods
and Services, Table 17, December 9, 2011.
Note: Estimates for January through December 2011 were developed by CRS from data in January-October,
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.
Congressional Research Service
2
U.S. Trade Deficit and the Impact of Changing Oil Prices
Figure 1. Quantity of U.S. Imports of Energy-Related Petroleum Products
440
420
400
380
f barrels
ns o 360
illio
M 340
320
300
ril y
t
er er y
ril y
er er y
ril y
er er y
ril y
y g p
une uly
ber
une uly
ber
une uly
ber
ne
Oc
Ap
gust
arch Ap
gust
arch Ap
gust
arch Ap
Ju Jul Au Se
Ma J J
ctober
anuar
Ma J J
ctober
anuar
Ma J J
ctober
anuar
Ma
Au
Au
Au
vemb cemb
ebruary M
vemb cemb
ebruary M
vemb cemb
ebruary M
O
O
O
eptem
J
eptem
J
eptem
J
De F
De F
De F
S No
S No
S No
2008
2009
2010
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 October 2011 was $98.8, down from an average of $101.07 in May 2011, but up 33% over the
average price per barrel of $74 in October 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 October 2011 fell 2.2% from September 2011 to reach $32.6 billion, but down about
31% from the total value of energy imports in October 2010, as indicated in Table 2.
Congressional Research Service
3
U.S. Trade Deficit and the Impact of Changing Oil Prices
Figure 2. Value of U.S. Imports of Energy-Related Petroleum Products
$45
$40
$35
$30
llars
$25
do
s of
$20
$15
Billion
$10
$5
ril
y
e
ly
t
r
r
ril
y
e
ly
t
r
r
ril
y
e
ly
t
r
r
ril
y
ly
t
p
a
n
e
ry
e
ry
e
ry
ber
b
e
a
rch
p
a
n
ber
b
e
a
rch
p
a
n
ber
b
e
a
rch
p
a
Aug
Sep
Oc
A
M
M
M
M
Ju
Ju
m
mb
ru
m
mb
ru
m
mb
ru
June
Ju
em
ctober
b
A
Ju
Ju
em
ctober
b
A
Ju
Ju
em
ctober
b
A
ve
ce
anuary
e
Ma
ve
ce
anuary
e
Ma
ve
ce
anuary
e
Ma
Augus
O
o
J
Augus
O
o
J
Augus
O
o
J
N
F
N
F
N
F
Sept
De
Sept
De
Sept
De
2008
2009
2010
2011
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 $517 billion for the
year. In 2010, the rise in oil prices, year over year, combined with a slight increase in energy
imports, pushed up the overall value of energy imports, which accounted for 41% of the total
merchandise trade deficit. In October 2011, the share of the U.S. trade deficit arising from energy
imports was 41%, up from the 39% recorded in October 2010.
Table 2. U.S. Imports of Energy-Related Petroleum Products, Including Crude Oil
(not seasonally adjusted)
Total energy-related
petroleum productsa
Crude oil
Thousands
Quantity
Quantity
of barrels
(millions of
Value
(millions of
per day
Value
Unit price
Period
barrels)
($ billions)
barrels)
(average)
($ billions)
(dollars)
2010
Jan.-Dec. 4,279.5 $323.8 3,377.7 9,252 $252.2 $74.67
Jan.-Oct. 3,59531 269.2
2,835.6 9,328 209.7 73.96
January 328.8
24.7 244.8
7,897 18.1
73.95
February 312.9 23.0 242.7 8,669 17.7 72.96
March 368.5
27.7 298.5
9,628
22.2
74.32
April 369.6
28.9 294.9
9,829
22.7
77.13
May 357.5
27.8
281.6
9,082
21.7
76.95
Congressional Research Service
4
U.S. Trade Deficit and the Impact of Changing Oil Prices
Total energy-related
petroleum productsa
Crude oil
Thousands
Quantity
Quantity
of barrels
(millions of
Value
(millions of
per day
Value
Unit price
Period
barrels)
($ billions)
barrels)
(average)
($ billions)
(dollars)
June 383.9
28.1
313.3
10,443
22.7
72.39
July 385.2
28.2
308.0
9,937
22.2
72.09
August 392.9
29.2 307.1
9,905
22.6
73.47
September 367.0 26.8
292.6 9,754 21.2 72.33
October 329.0 24.9 252.2 8,135 18.7 74.21
November 323.7 25.2
257.9 8,596 19.8 76.81
December 360.7 29.3
283.6 9,147 22.6 79.79
2011
Jan.-Oct. 3,486.3 351.1 2,779.2 9,142 275.4 99.08
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
May 350.7
38.8
275.3
8,879
29.9
108.70
June 366.8
39.4
296.7
9,889
31.4
106.00
July 350.7
37.2
281.1
9,067
29.3
104.27
August 365.4
38.0 302.5
9,757
31.0
102.62
September 343.6 35.1
280.1 9,338 28.2 101.02
October 325.9 32.6 263.2 8,490 26.0 98.84
Source: U.S. Department of Commerce, U.S. Census Bureau, Report FT900, U.S. International Trade in Goods
and Services, Table 17, December 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 October 2011, such imports averaged 8.5 million barrels per day, or an increase of 4.4% over
the volume of such imports recorded in October 2010, but a drop of 9% from September 2011.
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
5 Report FT900, U.S. International Transactions in Goods and Services, Table 17, December 9, 2011.
Congressional Research Service
5
U.S. Trade Deficit and the Impact of Changing Oil Prices
December 2010. As shown in Figure 3, oil import prices rose steadily between September 2010
and May 2011, before falling from June 2011 to October 2011.
Figure 3. U.S. Import Price of Crude Oil
$125
$115
$105
$95
rel
$85
r bar
$75
lars pe
Dol
$65
$55
$45
$35
y
r
r
y
r
r
y
r
r
r y e
g p t
pril a
st
er
ry
a
st
er
ry
a
st
er
ry
a
une
be ber
a rch pril
une
be ber
a rch pril
une
be ber
a rch Ap
n July Au Se Oc
J
uary
a
uary
a
uary
a
July ugu m
Ju
cto
J July ugu m cto
J July ugu m cto
A M
A
ebru
A M
A
ebru
A M
A
ebru
M
epte O
ecembe
F
O
ecembe
F
O
ecembe
F
D Jan
M
epte
D Jan
M
epte
D Jan
M
S
Novemb
S
Novemb
S
Novemb
2008
2009
2010
2011
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, translating into higher imported energy costs that 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 at an
average price of imported energy of about $100 per barrel, the total cost of energy imports could
rise to $400 billion to $414 billion, or about $90 billion more than the cost of energy imports in
2010.
Congressional Research Service
6
U.S. Trade Deficit and the Impact of Changing Oil Prices
Issues for Congress
The rise in the prices of energy imports experienced since early 2010 through May 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 experienced during the first half of 2011 could
affect the U.S. rate of inflation and 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. The pace of economic growth, however, seems to have stalled during the second quarter
of 2011, which could have an important effect on both the levels of oil imports and on the price of
such imports if economic growth remains listless. 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 in 2010 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 created uncertainty in the oil markets through the first half of
2011 and was a major factor in rising oil 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 government’s 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.
Congressional Research Service
7
U.S. Trade Deficit and the Impact of Changing Oil Prices
Author Contact Information
James K. Jackson
Specialist in International Trade and Finance
jjackson@crs.loc.gov, 7-7751
Congressional Research Service
8