WikiLeaks Document Release
http://wikileaks.org/wiki/CRS-RS22204
February 2, 2009
Congressional Research Service
Report RS22204
U.S. Trade Deficit and the Impact of Rising Oil Prices
James K. Jackson, Specialist in International Trade and Finance
January 13, 2009
Abstract. This report provides an estimate of the initial impact of the rising oil prices on the nation's
merchandise trade deficit.
http://wikileaks.org/wiki/CRS-RS22204
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Prepared for Members and Committees of Congress
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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 January 2009, prices of crude oil fell below $40 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.
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Background ..................................................................................................................................... 1
Issues for Congress.......................................................................................................................... 5
Figure 1. Quantity of U.S. Imports of Energy-Related Petroleum Products ................................... 2
Figure 2. Value of U.S. Imports of Energy-Related Petroleum Products ........................................ 3
Figure 3. U.S. Import Price of Crude Oil ........................................................................................ 5
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Table 1. Summary Data of U.S. Imports of Energy-Related Petroleum Products, Including
Oil (not seasonally adjusted) ........................................................................................................ 1
Table 2. U.S. Imports of Energy-Related Petroleum Products, Including Crude Oil (not
seasonally adjusted)...................................................................................................................... 3
Author Contact Information ............................................................................................................ 6
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
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.
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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 $319 billion. In the January-November
period of 2008, the quantity of energy-related petroleum imports fell by 5.0% compared with the
comparable period in 2007; crude oil imports also fell by 3.6% from the same period in 2007.
Year-over-year, the average value of energy-related petroleum products imports rose by 46%,
while the average value of crude oil imports rose by 53.4%. As Figure 1 shows, imports of
energy-related petroleum products can vary sharply on a monthly basis, but averaged about 382
million barrels a month in the January-November period of 2008.
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lio edurC 237,293,3 758,345,212$ 203,172,3 %6.3- 104,010,623$ %4.35
1
Census Bureau, Department of Commerce. Report FT900, U.S. International Trade in Goods and Services, January
13, 2009. Table 17. The report and supporting tables are available at http://www.census.gov/foreign-trade/Press-
Release/current_press_release/ftdpress.pdf.
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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 rose from
about $17 billion per month in early 2007 to $53 billion a month in July 2008, but fell to $22
billion in November 2008, reflecting a drop in the price and in the volume of imported oil. The
average price of imported oil in November 2008 was down 16% from the average price in
November 2007, and down 47% from the average price in July 2008, reflecting the sharp
decrease in the price of imported oil in August through November, as indicated in Table 2.
1 erugiF stcudorP muelorteP detaleR-ygrenE fo stropmI .S.U fo ytitnauQ .
Millions of barrels
450
440
430
420
410
400
390
380
370
360
350
340
330
Oct Dec Feb Apr Jun Aug Oct Dec Feb. Apr Jun Aug Oct
Nov Jan Mar May Jly Sep Nov Jan Mar May Jly Sep Nov
2006 2007 2008
ecremmoC fo tnemtrapeD :ecruoS
28.28 697,766,42 806,9 638,792 540,190,23 547,283 rebmeceD
78.97 490,099,32 211,01 173,003 245,177,13 384,983 rebmevoN
95.27 648,968,22 461,01 170,513 794,930,03 808,404 rebotcO
54.86 527,007,02 080,01 014,203 736,534,72 646,193 rebmetpeS
61.86 398,746,12 542,01 585,713 326,798,82 566,414 tsuguA
75.56 779,163,02 810,01 655,013 247,557,72 772,604 yluJ
99.06 720,326,91 527,01 757,123 698,327,62 471,414 enuJ
73.95 148,821,91 493,01 212,223 562,830,72 700,724 yaM
42.75 675,415,71 991,01 569,503 989,443,42 923,404 lirpA
51.35 207,149,61 382,01 387,813 524,681,32 262,814 hcraM
46.05 776,100,31 071,9 057,652 548,174,71 685,433 yraurbeF
81.25 925,367,61 463,01 272,123 619,560,22 828,914 yraunaJ
82.46$ 356,112,732$ 111,01 865,096,3 324,228,813$ 118,708,4 .ceD -.naJ
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2006 2007 2008
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Nov Jan Mar May Jly S ep Nov Jan Mar May Jly S ep Nov
Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct
$16
$20
$24
$28
$32
$36
$40
$44
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Billions of dollars
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yraunaJ 619,024 173,638,53$ 602,223 493,01 185,390,72$ 90.48$
yraurbeF 890,763 594,653,13 384,682 978,9 718,182,42 97.48
hcraM 252,363 321,641,33 175,872 689,8 666,030,52 58.98
lirpA 541,883 825,581,83 050,303 201,01 067,933,92 18.69
yaM 782,373 232,063,04 599,392 484,9 882,542,13 82.601
enuJ 576,283 673,702,54 235,792 819,9 641,058,43 31.711
yluJ 764,424 717,318,25 420,243 330,11 365,736,24 66.421
tsuguA 976,883 829,210,64 083,803 849,9 089,000,73 99.911
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rebmetpeS 440,933 838,971,63 672,352 344,8 502,742,72 85.701
rebotcO 667,314 039,236,73 581,423 854,01 414,038,92 20.29
rebmevoN 078,143 316,599,12 006,162 027,8 979,254,71 27.66
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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-November 2008, the
trade deficit in energy-related imports amounted to $364 billion, or 48% of the total U.S. trade
deficit of $763 billion for the eleven-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 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, 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
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, January 13, 2009. Table 17.
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, or 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.
3 erugiF liO edurC fo ecirP tropmI .S.U .
Dollars per barrel
$125
$120
$115
$110
$105
$100
$95
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$90
$85
$80
$75
$70
$65
$60
$55
$50
$45
Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct
Nov Jan Mar May Jly Sep Nov Jan Mar May Jly S ep Nov
2006 2007 2008
ecremmoC fo tnemtrapeD :ecruoS
Data for the January-November 2008 period indicate that a number of factors combined to push
oil prices to record levels in July 2008, before tumbling quickly. The sharp rise in prices
combined with a small decrease in the volumes of oil imports experienced during the period
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 deficit.
Since those record prices, the price per barrel of imported crude oil has fallen to under $40 per
barrel at times in January 2009. 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, 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.
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
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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.
James K. Jackson
Specialist in International Trade and Finance
jjackson@crs.loc.gov, 7-7751