U.S. Trade Deficit and the Impact of
Changing Oil Prices
James K. Jackson
Specialist in International Trade and Finance
June 18, 2012
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 January 2012 and April 2012, at times reaching more than
$109 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 second half of 2011 and the first half of 2012. While the price of oil was rising, the
volume of oil imports, or the amount of oil imported, decreased slightly from the comparable
period in the previous year. In general, market demand for oil remains highly resistant to changes
in oil prices and reflects the unique nature of the demand for oil. In addition, sustained demand
for oil in the face of higher prices reflected 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 early 2011 and in 2012. Although
prices for imported oil fluctuated somewhat throughout 2011, they averaged 30% higher than in
2010 and added about $100 billion to the total U.S. trade deficit in 2011. Oil futures markets in
June indicated that oil prices were expected to fluctuate around the $83 per barrel recorded in
June 2012, in part because oil producers agreed in mid-June to maintain the then-current
production levels to stabilize market prices. The increase in energy import prices in 2011 pushed
up the price of energy to consumers. In such cases, some elements of the public tend to pressure
Congress to provide relief to households that are struggling to meet their current expenses. 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 .......................................................................................................................... 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
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 four months of 2012 rose 7% over the same period in 2011
to reach an average price of $106 per barrel. In 2008, petroleum prices reached nearly $140 per
barrel, before falling at a historic rate.2 Generally, petroleum prices rise during the winter and
spring months and then decline in the fall. Following the economic recession in 2009, however,
average petroleum prices fell each month between August 2008 and February 2009, but then
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. In December 2010, as the pace of
economic growth increased, 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.
Petroleum import prices then trended downward through the end of 2011, falling to an average
price of $99.71 per barrel in December 2011. Oil futures contracts for fall 2012 indicate that
crude oil prices are expected to average $85 to $87 per barrel through the fall of 2012, reflecting
the slowdown in economic growth in most markets. 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 and 2010-2011.3
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 into the first half of 2011, driving up energy imports and energy prices.
Although the pace of economic growth in the United States and Europe slowed in the last half of
2011, petroleum prices moderated only slightly. 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 2011 and
estimated values for 2012 are presented in Table 1. The data indicate that during 2011, the United
States imported about 4.2 billion barrels of energy-related petroleum products, valued at $421
billion. On average, energy-related imports for 2011 were down 2.7% in volume terms from the
average amount in 2010 and cost an average of 30% more than similar imports during the same
1 U.S. Department of Commerce, U.S. Census Bureau, Report FT900, U.S. International Trade in Goods and Services,
Table 17, June 8, 2012. 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
period in 2010. 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 capita income than to changes in oil prices.4 Based on four months of data, estimates
for 2012 indicate that with the average price of around $106 per barrel, U.S. imported petroleum
costs could rise by about $30 billion in 2012 to reach $451 billion.
Table 1. Summary Data of U.S. Imports of Energy-Related Petroleum Products,
Including Oil (not seasonally adjusted)
January - April
2011
2012
Quantity
Value ($
Quantity
% change
% change
(millions of
billions)
(millions of barrels)
2011 to
Value ($ billions)
2011 to
barrels)
2012
2012
Total energy-
related
1,383.0 $129.9
1,285.9 -7.0% $139.1 7.0%
petroleum
products
Crude
oil 1,077.1 $99.1
1,037.3 -3.7% $110.4 11.4%
January through December
2011
2012
(Actual values)
(Estimated values)
Quantity
Value ($
Quantity
% change
% change
(millions of
billions)
(millions of barrels)
2010 to
Value ($ billions)
2010 to
barrels)
2011
2011
Total energy-
related
4,165.0 $421.4
3,872.4 -7.0% $451.0 7.0%
petroleum
products
Crude
oil 3,324.3 $331.7 3,201.5 -3.7% $369.5 11.4%
Source: U.S. Department of Commerce, U.S. Census Bureau, Report FT900, U.S. International Trade in Goods
and Services, Table 17, June 8, 2012.
Note: Estimates for January through December 2012 were developed by CRS from data in January-April, 2012,
and data through 2011 published by the Census Bureau using a straight line extrapolation.
The data also indicate that in 2011, the quantity of energy-related petroleum imports fell by 2.7%
compared with the comparable period in 2010; crude oil imports fell by 1.6% from the same
period in 2010. Year-over-year, the average value of energy-related petroleum products imports
rose by 30% in 2011, while the average value of crude oil imports rose by 31.5%. As Figure 1
shows, imports of energy-related petroleum products can vary sharply on a monthly basis. In
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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2
U.S. Trade Deficit and the Impact of Changing Oil Prices
2011, imports of energy-related petroleum products averaged about 347 million barrels per
month.
Figure 1. Quantity of U.S. Imports of Energy-Related Petroleum Products
440
420
400
rels
380
f bar
360
illions o
M 340
320
300
y
y
y
y
ly g p t
pril
er
er
er
er
une
ber
ber
rch pril
une
ber
ber
rch pril
une
ber
ber
rch pril
Oc ber
rch pril
A
July
A
July
A
July
A
June Ju Au Se
A
Ma J
ugust
ctober
J
ugust
ctober
J
ugust
ctober
cemb
ebruary
Ma
cemb
ebruary
Ma
cemb
ebruary
Ma
cemb
ebruary
A ptem
ovem
Ma
A ptem
ovem
Ma
A ptem
ovem
Ma
ovem
Ma
O N
January
O
January
O
January
January
F
N
F
N
F
N
F
De
De
De
De
Se
Se
Se
2008
2009
2010
2011
2012
Source: Department of Commerce.
In value terms, energy-related imports rose from a total value of $324 billion in 2010 to $421
billion in 2011, or an increase of 30%, to account for about 20% 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 2012 was $109.9, up 7% from an average of $103.2 in April 2011 and up from the
average price per barrel of $103.8 in January 2012. 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 2012 rose 5.9% from January 2012 to reach about $36.5 billion and up about
7% from the total value of energy imports in April 2011, 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
$45
$40
$35
s
$30
llar
$25
f do
o
$20
ns
$15
Billio
$10
$5
ril y e ly st
r r
ril y e ly st
r r
ril y e ly st
r r
ril y
ly
t r r
ril
p a n
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e e
ry
p a n
u
e e
ry
p a n
u
e e
ry
p a
e e
ry
p
g ber
a rch
g ber
a rch
g ber
a rch
Aug Sep Oc
a rch
A M Ju Ju u
tober mb mb
ru
A M Ju Ju u
tober mb mb
ru
A M Ju Ju u
tober mb mb
ru
A M June Ju
mb mb
ru
A
A em
Ma
Ma
Ma
Ma
ve ce anuary b
b
b
b
e
A em
ve ce anuary e
A em
ve ce anuary e
ve ce anuary e
o e
o e
o e
o e
Oc
J F
Oc
J F
Oc
J F
J F
N
N
N
N
Sept D Sept D Sept D
D
2008
2009
2010
2011
2012
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 $517 billion for the
year. In 2011, the rise in oil prices, year over year, combined with a slight decrease in energy
imports, pushed up the overall value of energy imports, which accounted for 44% of the total
merchandise trade deficit. In April 2012, the share of the U.S. trade deficit arising from energy
imports was 43%, down from the 45% recorded in April 2011.
Table 2. U.S. Imports of Energy-Related Petroleum Products, Including Crude Oil
(not seasonally adjusted)
Total energy-related
petroleum productsa
Crude oil
Thousands
Quantity
Quantity
of barrels
(millions of
Value
(millions of
per day
Value
Unit price
Period
barrels)
($ billions)
barrels)
(average)
($ billions)
(dollars)
2011
Jan.-Dec. 4,165.0 421.4 3,324.3 9,108
331,698.1 99.78
Jan.-Apr. 1,383.0 129.9 1,077.1 8,976 99.1 92.02
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
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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)
June 366.8
39.4
296.7
9,889
31.4
106.00
July 350.9
37.2
281.1
9,067
29.5
104.27
August 365.4
38.0 302.5
9,757
31.0
102.62
September 343.6 35.1
280.1 9,338 28.3 101.02
October 325.9 32.6 263.2 8,490 26.0 98.84
November 336.9 34.8
266.2 8,874 27.3 102.50
December 341.8 35.5
278.9 8,998 29.0 104.13
2012
Jan.-Apr. 1,285.9 139.1 1,037.3 8,573 110.4 106.45
January 344.8
36.1 270.7
8,733 28.1
103.81
February 283.7 30.0 225.7 7,783 23.4
103.63
March 332.1
36.5 270.9
8,738
29.2
107.95
April 325.4
36.5 270.0
9,000
29.7
109.94
Source: U.S. Department of Commerce, U.S. Census Bureau, Report FT900, U.S. International Trade in Goods
and Services, Table 17, June 8, 2012.
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 2012, such imports averaged 9.0 million barrels per day, or an increase of 7.0% from the
volume of such imports recorded in April 2011, and an increase of 3% over March 2012. 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 2011, crude oil
imports averaged 277 million barrels per month at an average value of $27.6 billion a month. Oil
import prices in 2011 rose from about $84 per barrel in January 2011 to an average of $104.1 in
December 2011. As shown in Figure 3, oil import prices rose steadily between September 2010
and May 2011, fell from June 2011 to October 2011, and then rose again through December 2011.
5 Report FT900, U.S. International Transactions in Goods and Services, Table 17, June 8, 2012.
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U.S. Trade Deficit and the Impact of Changing Oil Prices
Figure 3. U.S. Import Price of Crude Oil
$125
$115
$105
$95
rrel
$85
r ba
$75
ars pe
Doll
$65
$55
$45
$35
y e
r r
y e
r r
y e
r r
r y e ly g p t
pril a
e er er ary ry
ry
ry
ry
a rch pril a
e er er ary a rch pril a
e er er ary a rch
a
er er ary a rch pril
A M
be
b
be
b
be
b
Ap
Oc
b
Jun July
M
M
M
Ju Au Se
ugust
a A
Jun July ugust
a A
Jun July ugust
a
Jun
a A
A
M
A
M
A
M
M
vemb
ebru
vemb
ebru
vemb
ebru
vemb
ebru
Octob
Janu F
Octob
Janu F
Octob
Janu F
Janu F
eptem
No Decem
eptem
No Decem
eptem
No Decem
No Decem
S
S
S
2008
2009
2010
2011
2012
Source: Department of Commerce.
Data for 2008 and 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 had 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 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. In 2011, at an average price of imported energy
of about $100 per barrel, the total cost of energy imports rose to $421 billion, or about $100
billion more than the cost of energy imports in 2010.
Issues for Congress
The rise in the prices of energy imports experienced from early 2012 through April 2012 likely
will have a negative impact on the annual U.S. trade deficit in 2012, especially if those price run
higher towards the end of the year. The ubiquitous nature of oil in the economy generally means
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U.S. Trade Deficit and the Impact of Changing Oil Prices
that changes in energy prices will affect the U.S. rate of inflation and the rate of economic
growth. Various factors, dominated by the political turmoil in the Middle East and the rate of
economic growth in Asia and other developing economies, combined in 2011 to push up the cost
of energy imports. The pace of economic growth, however, stalled in the second quarter of 2012,
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 in 2011 and into 2012 and
was an important factor driving oil prices. As was the case in 2008, high and sustained oil prices
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.
Author Contact Information
James K. Jackson
Specialist in International Trade and Finance
jjackson@crs.loc.gov, 7-7751
Congressional Research Service
7