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Wednesday, April 20, 2011

U.S. Oil Imports: Context and Considerations

Neelesh Nerurkar
Specialist in Energy Policy

Despite long standing concern by policy makers, U.S. oil imports have generally increased for decades. Two periods stand out as exceptions: the early 1980s and the last five years. Both periods were characterized by high oil prices, economic volatility, and attention to energy policy. U.S. oil imports fell each year between 2005 and 2010 to reach just under 50% of U.S. liquid fuel consumption, its lowest level since 1997. The economic downturn and higher oil prices were a drag on oil consumption, while price-driven private investment and policy helped increase domestic supply of oil and oil alternatives.

Among the sources of net U.S imports, about a quarter of net imports come from Canada and another half come from countries that are members of the Organization of the Petroleum Exporting Countries (OPEC). Almost 20% of imports come from the Persian Gulf (from OPEC countries in the region). Global oil supply disruptions can shift import trends and raise prices for oil produced at home and imported. This is true even if the disruption occurs in countries that are not normally sources of U.S. imports. Even anticipation of disruption risks can have similar impacts.

Reliance on oil imports is of particular concern to policy makers when oil prices increase. Increased fuel costs for households and businesses can reduce spending on other goods and services that might be domestically produced, send more wealth abroad, and cause economic dislocations, such as greater unemployment. Economic forecasters estimate a sustained $10 increase in the per barrel price of oil can reduce U.S. economic growth by 0.2% in part due to how much U.S. consumption is met by imports. However, even in a scenario where the U.S. produced as much oil as it consumed, an increase in international oil prices would still raise oil costs for households and businesses and cause economic dislocations, but wealth associated with the increase may remain in the country.

Oil import volumes are expected to remain roughly flat over the next two decades. There is a growing consensus that U.S. imports passed their high-watermark in 2005. Such forecasts are predicated on expectations that current laws supporting fuel efficiency and domestic supply are not reversed and that oil prices continue to rise. While volumes may remain flat, rising prices could still increase the cost of oil imports.

There is congressional interest in further reducing the potential risks posed by import dependence. Policy options generally fall into four categories: 
  • Direct trade policy regarding oil imports, 
  • Long-term measures aimed at reducing the need for imports through greater domestic supply (conventional and alternative) and greater fuel efficiency to reduce demand, 
  • Short term energy policy tools like the release of oil stored in the Strategic Petroleum Reserve (SPR), and 
  • Foreign policy measures aimed at making foreign sources of oil more secure (not covered in this report).

Date of Report: April 1, 2011
Number of Pages: 22
Order Number: R41765
Price: $29.95

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