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Crude Oil Exports Will Reduce the Trade Deficit

This week, the Commerce Department released its Annual Trade Highlights which found that the petroleum deficit in 2014 was at the lowest point since 2004. For those of you who may not be familiar, the “petroleum deficit” is the percentage of the U.S. trade deficit that is attributable to importing crude oil and refined petroleum products.

Driven principally by the United States’ energy renaissance, the Commerce Department also noted that 2014 marked a record high in the value of refined petroleum products (i.e. gasoline, diesel fuel, jet fuel etc.) exported from the U.S. to our trading partners around the world, accounting for nearly 10 percent ($146 billion) of the total value of all products exported from the U.S. last year.

So, what’s the good news? Well, America is becoming more energy secure through the increased production of our domestic oil and natural gas resources. As the Wall Street Journal noted this week, the domestic “Oil Boom a ‘Game-Changer’ on Trade Deficit”:

“The U.S. oil boom is redrawing America’s trade picture. Petroleum imports accounted for less than 20% of the nation’s trade deficit last year, down from more than 40% only five years earlier, according to figures for 2014 released Thursday… “If we hadn’t had this oil boom I think our deficit would be lot larger than it is right now,” said IHS Global Insight economist Patrick Newport. “It’s a game-changer.”

This is good news because we’re now able to reduce the volume of crude oil that we historically imported in greater quantities – which contributed to the trade deficit – and rely more on crude oil produced in places like North Dakota and Texas.

How does crude oil exports factor into this? As you may know, government policy allows for unfettered exports of gasoline, diesel fuel, jet fuel and other refined products; however, it prohibits domestically produced crude oil from being traded with our friends and allies around the world.

If Congress and/or President Obama were to repeal this policy, studies show that the trade deficit – and specifically the petroleum deficit – could narrow to the tune of billions of dollars per year while also putting downward pressure on the price consumers pay for gasoline at the pump and providing our trading partners with a reliable, stable and secure source of oil.

From ICF International:

“Lifting crude oil export restrictions contributes to expanded U.S. exports. This could narrow the U.S. trade deficit by $22.3 billion in 2020.”

In fact, the White House has recognized the impact domestic energy production can have on reducing the deficit. In a blog posted on the White House website on August 29, 2013, two of the president’s top economic advisors, Jason Furman and Gene Sperling, wrote:

“[T]he President’s focus on increasing America’s energy independence is not just a critical national security strategy, it is also part of an economic plan to create jobs, expand growth and cut the trade deficit.”

“We will shortly be at the point where domestic crude oil production exceeds imports on a sustained basis for the first time since the early 1990s. The increased domestic supply combined with increased oil efficiency of the economy reduces vulnerability to global supply disruptions and price shocks, enhancing our national security.”

Others have weighed in on the debate as well:

  • Council on Foreign Relations: “Republicans and Democrats alike, including President Obama, express support for boosting U.S. exports in general. Crude oil should be no exception.”
  • Columbia University:“As a matter of principal, moreover, crude export restrictions are inconsistent with the US enjoying the benefits of petroleum trade and the US commitment to free and open markets.”
  • Progressive Policy Institute:“U.S. oil and gas exports to the rest of the world are constrained by obsolete laws spawned during the ‘energy crisis’ of the 1970s… lawmakers should be using their political capital to repeal those laws and allow U.S. producers to freely trade oil and gas on world markets, like any other commodity.”
  • Resources for the Future:“All parties can agree that lifting the ban confers some advantages to the United States as a whole. It would improve our trade balance and provide us with greater geopolitical leverage.”
  • Brookings Institution: “[A]llowing goods to flow into the international market gives buyers access to competitive prices and sellers access to world markets while enhancing free trade.”

Narrowing our trade deficit benefits all Americans, and lifting the crude oil export ban would ensure that we experience the positive economic effects for generations to come.

 


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