Bloomberg News

Oil Tumble Sends U.S. Trade Gap to Four-Year Low: Economy

January 07, 2014

Trade Balance

Container ships are loaded and unloaded at the Port of Virginia APM Terminal in Portsmouth, Virginia. Photographer: Luke Sharrett/Bloomberg

A plunge in oil imports pushed the trade deficit in November to the lowest level in four years, showing the U.S. economy is becoming more energy independent.

The gap narrowed 12.9 percent to $34.3 billion, smaller than projected by any economist surveyed by Bloomberg and the least since October 2009, figures from the Commerce Department showed today in Washington. Petroleum imports were the weakest in three years as advances in domestic extraction put the U.S. on track to become the world’s largest oil producer by 2015.

The fuel-driven drop in purchases from abroad overshadowed record demand for foreign autos, parts and capital goods that indicate spending by American consumers and businesses is strengthening. Exports also were the strongest ever as improving economies in Europe and Asia benefit companies like Boeing Co. (BA:US), contributing to a pickup in manufacturing.

Related: Republican Murkowski Urges End to U.S. Crude Export Ban

“The trend toward more domestic fuel production is ongoing and it’s only going to get better,” said Chris Low, chief economist of FTN Financial in New York, who projected the trade gap would narrow. “Energy is the big thing, but there are other trends here.”

“The fact that the European recession is over is one of the most important things for U.S. trade and for U.S. manufacturing this year,” said Low.

Shares Climb

Stocks rose, snapping a three-day retreat, as hospital and health-insurance shares rallied ahead of this week’s corporate earnings reports. The Standard & Poor’s 500 Index climbed 0.6 percent to 1,837.88 at the close in New York.

Elsewhere today, German unemployment fell in December for the first time in five months, signaling increased confidence by the nation’s companies. The number of people out of work in Europe’s largest economy decreased by a seasonally adjusted 15,000 to 2.965 million, the Nuremberg-based Federal Labor Agency said.

U.S. Treasury Secretary Jacob J. Lew, on a two-day tour through France, Germany and Portugal, today called on Europe to adopt measures to strengthen its banks. He is also encouraging his European counterparts to bolster economic growth in the 18-nation euro area.

The median forecast in a Bloomberg survey of 68 economists projected the U.S. trade deficit would come in at $40 billion. Estimates ranged from $38 billion to $42.8 billion. The Commerce Department revised the October gap down to $39.3 billion from an initially reported $40.6 billion.

Fewer Imports

Imports dropped 1.4 percent to $229.1 billion in November, according to the Commerce Department. Purchases of crude oil tumbled to $28.5 billion, the lowest since November 2010, reflecting both lower prices and volume.

The nation’s petroleum deficit shrank to $15.2 billion in November, the lowest since May 2009. Increasing domestic output pushed exports of petroleum products to a record.

Those trends continued last month. Domestic crude-oil production increased to 8.12 million barrels a day in the last full week of December, the most in 25 years, according to the U.S. Energy Information Administration. Output surpassed imports in October for the first time since 1995.

Advances in extraction techniques such as hydraulic fracking and horizontal drilling have led to increased crude-oil production, and the Paris-based International Energy Agency projects the U.S. will surpass Russia and Saudi Arabia as the world’s largest producer by 2015.

Oil Production

Manufacturing companies, particularly chemical makers, also stand to win as the shale bonanza keeps natural gas cheaper in the U.S. than in Asia or Europe. The chemical industry is one of the top consumers of natural gas, using it both as a fuel and feedstock to produce the compounds it sells.

Celanese Corp. (CE:US), a chemical maker, and Axiall Corp. (AXLL:US), North America’s largest producer of vinyl building products, are among those benefiting. Dallas-based Celanese received final approval this month to build a Texas methanol plant that will supply the company with two-thirds of its domestic needs of the chemical.

Atlanta-based Axiall is considering building a $3 billion ethylene plant in Louisiana with a partner to take advantage of an abundance of cheap shale gas.

Total U.S. exports increased 0.9 percent to $194.9 billion in November, today’s report showed, reflecting a $390 million gain in civilian aircraft and a $264 million advance in chemical sales. American companies’ sales to customers in China were the strongest ever.

Global Outlook

Dennis Muilenburg, president and chief operating officer of Chicago-based Boeing, is among executives who are optimistic about business abroad. The planemaker collects about 30 percent of its revenue outside the U.S., which Muilenburg predicts will be a stable share “for the long term.”

“It’s not just a wave of exports, it’s something we can sustain for the long run,” Muilenburg said at a Dec. 4 conference.

The figures used to calculate gross domestic product, which eliminate the influence of prices, showed the trade deficit narrowed to $44.6 billion in November, a five-month low. The fourth-quarter average so far is smaller than in the previous three months, indicating trade boosted gross domestic product.

Economists at Deutsche Bank Securities Inc. and Barclays Plc in New York were among those raising fourth-quarter growth forecasts by at least a percentage point today, reflecting the improvement in trade and earlier data showing gains in consumer spending and business investment.

The trade data “adds to an already upbeat growth picture,” said Michael Gapen, a senior U.S. economist at Barclays in New York, after the bank’s economists revised their GDP forecast for last quarter to 3 percent from 1.5 percent. “2014 is shaping up to be a better year globally.”

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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Companies Mentioned

  • BA
    (Boeing Co/The)
    • $128.09 USD
    • 1.30
    • 1.01%
  • CE
    (Celanese Corp)
    • $64.27 USD
    • 0.15
    • 0.23%
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