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Summary:
Petroleum prices have risen sharply since early 2004. At the same time, however, the average amount of imports of energy-related petroleum products has risen slightly. The combination of sharply rising prices and a slightly elevated level of demand for imports of energy-related petroleum products translates into an escalating cost for those imports. This rising cost could add an estimated $60 to $90 billion to the Nation's trade deficit in 2005, depending on how sustainable are the recent price increases. 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. According to data published by the Census Bureau of the Department of Commerce,1 the prices of petroleum products over the past year have risen considerably faster than the change in demand for those products. As a result, it is estimated that the price increases of imported energy-related petroleum products will worsen the U.S. trade deficit in 2005. 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 by far within this broad category of energy-related imports. The increase in the trade deficit is expected to have a slightly negative impact on U.S. gross domestic product (GDP) and could place further downward 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, some of the negative effects could be mitigated. 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 2004 and for the first five months of 2005. Based on the data for the January through May 2005 period, estimates are provided for the values for the full year 2005.
