Oil Prices versus US Trade Balances
Crude Costs Affect American Trade Deficit over Longer Term
Feb 24, 2009
Since 1988, the average annual oil price per barrel jumped 570% from US$14.87 to an average $99.65 for 2008.
Over that same period, America’s trade deficit accelerated by 491% to $677.1 billion, up from $114.6 billion in 1988.
While crude oil prices are major cost factors incurred to transport imports and exports into and out of America, oil costs are not the immediate drivers for nor are they the sole factors behind America’s huge trade deficit.
Historical Oil Prices from 1988 to 2008
Below are the annual crude oil costs per barrel for the past 20 years. Nominal prices are presented, which means the statistics shown are not adjusted for inflation.
- 2008 … US$99.65 average price (up 55.2% from prior year)
- 2007 … $64.20 (up 10.1%)
- 2006 … $58.30 (up 16.5%)
- 2005 … $50.04 (up 32.9%)
- 2004 … $37.66 (up 36%)
- 2003 … $27.69 (up 21.4%)
- 2002 … $22.81 (down 0.8%)
- 2001 … $23.00 (down 16%)
- 2000 … $27.39 (up 65.4%)
- 1999 … $16.56 (up 39%)
- 1998 … $11.91 (down 36.1%)
- 1997 … $18.64 (down 8.9%)
- 1996 … $20.46 (up 22.1%)
- 1995 … $16.75 (up 7%)
- 1994 … $15.66 (down 6.5%)
- 1993 … $16.75 (down 13%)
- 1992 … $19.25 (down 4.7%)
- 1991 … $20.20 (down 12.9%)
- 1990 … $23.19 (up 26.5%)
- 1989 … $18.33 (up 23.3%)
- 1988 … $14.87 (down 16.2%).
Over this 20 year time horizon, the highest annual increases in oil prices were in 2000, 2008, 1999, 2004 and 2005. The steepest declines in oil prices were in 1998, 1988, 2001 and 1993.
US Trade Balances from 1988 to 2008
America has run a trade deficit for over 30 years, starting with a relatively modest negative US$6.1 million in 1976. During the past 20 years, the most dramatic increases in the US trade deficit were in 1993, 1999, 1998, 2000 and 1994. In 3 of those years (1993, 1994 and 1998), oil prices were lower than in the prior year.
- 2008 … US-$677,099 (American trade deficit down 3.3% from prior year)
- 2007 … -$700,258 (deficit down 7%)
- 2006 … -$753,283 (deficit up 5.9%)
- 2005 … -$711,567 (deficit up 17.1%)
- 2004 … -$607,730 (deficit up 22.3%)
- 2003 … -$496,915 (deficit up 17.3%)
- 2002 … -$423,725 (deficit up 16%)
- 2001 … -$365,126 (deficit down 3.9%)
- 2000 … -$379,835 (deficit up 43.3%)
- 1999 … -$265,090 (deficit up 59.6%)
- 1998 … -$166,140 (deficit up 53.4%)
- 1997 … -$108,273 (deficit up 4%)
- 1996 … -$104,065 (deficit up 8%)
- 1995 … -$96,384 (deficit down 2.1%)
- 1994 … -$98,493 (deficit up 40.1%)
- 1993 … -$70,311 (deficit up 79.3%)
- 1992 … -$39,212 (deficit up 25.9%)
- 1991 … -$31,135 (deficit down 61.5%)
- 1990 … -$80,864 (deficit down 13.2%)
- 1989 … -$93,141 (deficit down 18.7%)
- 1988 … -$114,566 (deficit down 24.5%).
The greatest annual decreases in the US trade deficit were in 1991, 1988, 1989, 1990 and 2007. Oil prices went up in 1989, 1990 and 2007 but went down in 1988 and 1991.
Oil Price Effects on US Trade Balances
This analysis shows that lower oil prices don’t necessarily lead to an imminent decrease in the US trade deficit, at least not in the short term. Similarly, a spike in the cost of crude oil doesn’t immediately hike import costs into America. Theoretically these should accelerate its trade deficit.
If average crude costs stay at around $40 as they are in late February, 2009, this will result in a 60% decrease in oil prices from an average price of $100 in 2008. If so, this will represent the most dramatic decrease in oil price history.
A decrease in oil prices will most certainly reduce export revenues for commodity-based economies like Canada and Saudi Arabia. Ironically, because the U.S. has contracted out much of its manufacturing to developing nations, the impact of lower oil prices will be much more visible on American consumer behavior before the muted longer term effects on the US trade balance become apparent.
Sources for this Article
This article presents independent calculations and insights based on crude oil prices presented at inflationdata.com compared with trade balance data from U.S. Census Bureau, Foreign Trade Division.
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