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Petroleum prices have risen sharply since early 2005. At the same time the average amount of imports of energy-related petroleum products has fallen slightly. The combination of sharply rising prices and a slightly lower level of imports of energy-related petroleum products translates into an escalating cost for those imports. This rising cost added an estimated $70 billion to the nation's trade deficit in 2005 and could add another $60 to $70 billion in 2006, depending on the course of energy import prices over the remainder of 2006. 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, the price increases of imported energy-related petroleum products worsened the U.S. trade deficit in 2005 and likely will do so again in 2006. 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 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 2005 and for 2006. The data indicate that the United States imported 5.0 billion barrels of total energy-related petroleum products in 2005, valued at $243 billion. In January through October 2006, the quantity of imports decreased slightly form the same period in 2005 as the volume of energy-related petroleum products imports fell …