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Oil Booms, Trade Deficit Narrows

In September, the US trading deficit shrunk by $2.3 billion. Why? The reason is simple: the US is producing more oil. A $2.2 billion surge in oil exports accounted for more than three fourths of the reduction of the trade deficit, counteracting a small surge in imports. The WSJ reports:

What’s going on? Lower demand is part of the story. U.S. oil consumption rose steadily in the 1990s and early 2000s, hitting 20.8 million barrels per days in 2005. But demand leveled off in the mid-2000s due to improved fuel efficiency, changed driving habits and increased consumption of ethanol, then plunged at the end of the decade due to the recession. Consumption bottomed out at 18.8 million barrels per day in 2009, and has hardly rebounded from there.

The major driver, however, is supply. U.S. oil production has risen more than 20% over the past five years, reversing two decades of decline. Drilling techniques that first revolutionized the natural-gas industry have now unlocked vast new oil fields in North Dakota, Texas and perhaps even Ohio. North Dakota’s oil production has more than doubled in just the past two years.

A one month change doesn’t mean much, but this looks to be long term trend. In the past five years, the trade deficit in oil (the difference between imports and exports) has gone down 40%. Thanks to fracking technology combined with greater efficiency, we are making more oil and importing less.

It’s still much too early to tell just how transformative the new energy boom will be, and the new oil and gas wealth won’t be a magic genie that solves all America’s problems. But rising energy production — combined with continuing improvements in energy efficiency — makes everything better, including, it is now clear, America’s long running trade deficit.


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