New data from the Energy Information Administration illustrates the improving trade picture for the United States due to a rapid increase in oil production. Rising production, flat demand, and increasing exports of refined petroleum products reduced the U.S. trade deficit to its lowest level in November 2013 since the aftermath of the financial crisis in 2009.
However, the quantity of oil imported dropped a lot more than its price tag. In other words, U.S. oil imports peaked in 2005 at around 10 million barrels per day. The U.S. has succeeded in cutting imports dramatically since then. But the cost of oil imports – even while the quantity declined – has gone up and down along with its price. Particularly during the large price spikes in the summer of 2008, the economic cost of oil imports led to record trade deficits.
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Despite higher prices, the U.S. has reduced the economic burden of its oil dependence since 2011, when domestic oil production began to surge. For example, the cost of imported oil dropped by 13% in 2013 from a year earlier. The EIA estimates that domestic oil and gas production will continue to rise this year and next, and with demand remaining relatively flat, the trade picture should continue to improve. The EIA also believes that exports of refined petroleum products will only be limited by the ability of the refinery industry to churn out product. However, should the economies of U.S. export markets deteriorate, exports could take a hit.
The data demonstrates why allies of the oil and gas industry are pushing for a liberalization of oil and gas markets. The industry argues that if the U.S. would allow LNG and crude oil exports, the balance of trade could be improved further.
By Charles Kennedy of Oilprice.com
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