Rising oil prices sent U.S. petroleum deficit to record level Filed: 03/22/2000

By Michael McKee c.2000 Bloomberg News

Washington, March 21 (Bloomberg)  The highest crude oil prices since the Persian Gulf crisis sent the U.S. trade deficit in petroleum to a record $6.9 billion in January.

Higher oil imports, in turn, helped push the overall U.S. trade deficit to a record $28 billion for the month.

The price of imported crude oil averaged $23.18 a barrel in January, the highest since December 1990, after the Organization of Petroleum Exporting Countries suggested it would keep production cuts in place.

In March 1999, OPEC approved a yearlong program to cut production and eliminate a global surplus. Though prices doubled last year as inventories fell, OPEC said in January it still wanted to see lower global stockpiles.

The production agreement last March, which included such non-OPEC countries as Mexico and Norway, aimed to cut daily world output by about 5 million barrels, or 7 percent, from February 1998 levels.

The U.S. trade deficit with the OPEC nations more than doubled in January to $2.7 billion, from $1.2 billion in December and $880 million in January 1999. The numbers for specific countries measure trade in goods alone and aren't adjusted for seasonal variations.

Record Deficit

The overall U.S. deficit for all petroleum products, which includes trade with all nations and is seasonally adjusted, rose 17 percent from December's $5.9 billion and 130 percent from January 1999's $3 billion. It was the highest since the Commerce Department began keeping monthly records in 1989.

Rising energy prices have lifted the overall U.S. consumer price index. The CPI in February rose 0.5 percent, and for the year so far, consumer prices are up 3.2 percent, almost double the 1.8 percent pace of a year ago.

"The simple arithmetic is gasoline rises 2.5 cents a gallon per dollar rise in a barrel of oil," said Kenneth Haley, chief economist at Chevron Corp., "other things being equal."

Energy prices account for about a tenth of the price index. Excluding oil and food, the CPI is up only 2.1 percent over the past 12 months.

Gas Prices

U.S. retail gasoline rose to $1.316 a gallon in the last week of January, reaching a nine-year high. Since December 1998, prices at the pump increased 30.1 percent, the biggest rise since a 36.8 percent surge in 1990  the year when the Persian Gulf crisis began.

Last week, gasoline hit a record $1.529 a gallon, though the 0.2 cent rise was the smallest since January.

To be sure, oil prices still are comparatively modest by historical standards. Prices would have to more than double  to $65 a barrel  to equal an inflation-adjusted peak in 1981, according to a study by the U.S. Energy Department in November.

Heating oil prices almost tripled from January 1998, reaching the highest levels since 1990, as the American Petroleum Institute reported that U.S. inventories dropped to a 2 1/2-year low in January, with weeks of winter demand remaining.

Cold Weather

Consumption rose as frigid weather gripped the Northeast, the nation's biggest market for heating oil. The prolonged period of sub-freezing weather in the Northeast has led to stronger demand than expected, after two mild winters and a slow start to the current season.

"This is the tightest heating oil market I've ever seen," said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons in St. Louis.

The petroleum deficit should fall in the coming months, however. Crude oil futures fell almost 5 percent yesterday to the lowest price in a month, and gasoline plunged, on mounting expectations that OPEC will agree next week to increase output enough to meet second-quarter demand and boost inventories.

Crude Oil Falls

Crude oil for April delivery yesterday fell $1.48, or 4.8 percent, to $29.43 a barrel on the New York Mercantile Exchange, the lowest closing price since Feb. 23. Prices have fallen in four of the past five trading days and are down 14 percent from a nine-year high of $34.37 on March 8. The April contract expires tomorrow.

Gasoline for April delivery fell 4.44 cents, or 4.8 percent, to 88.99 cents a gallon on the Nymex. Prices are down 13 percent from a nine-year high of $1.025 a gallon on March 7. Gasoline futures represent wholesale, not retail, prices.

Venezuela's energy minister, Ali Rodriguez, is touring the Persian Gulf and North Africa trying to persuade fellow OPEC members to raise production. U.S. President Bill Clinton urged Venezuelan President Hugo Chavez this weekend to pump more oil when OPEC's output-limiting agreement expires on March 31.

"The anticipation is that all this diplomacy will work," said Phil Flynn, vice president and senior market analyst at Alaron Trading Corp. in Chicago.

Gap With Asia

The U.S. trade gap with Asia fell 1.4 percent to $15.7 billion in January from $15.9 billion in December, and compares with a $12.6 billion shortfall in January 1999, the Commerce Department said.

The nation's trade deficits with China and the newly industrialized countries of South Korea, Singapore, Taiwan and Hong Kong rose, while the deficit with Japan fell.

The deficit with Japan dropped 20 percent to $5.6 billion from $7 billion in December. That compared with a $4.7 billion trade gap with Japan in January 1999.

Japan

U.S. imports from Japan fell 14.9 percent to $10.3 billion from $12.1 billion in December, the Commerce Department said. Imports of Japanese-made vehicles fell 22 percent in January, even as Americans bought new cars and trucks at a record rate.

U.S. exports to Japan fell 8.2 percent to $873 million from $1 billion in December.

The U.S. trade deficit with China rose 17.6 percent to $6 billion from $5.6 billion in December, as imports rose and exports fell. The deficit compares to a $4.9 billion gap in January 1999.

The trade deficit with the newly industrialized countries rose to $2.5 billion from $1.8 billion in December. The deficit was $1.6 billion in January of last year.

Deficit With EU

The deficit with the 15-nation EU bloc fell 0.9 percent to $3.86 billion from $3.89 billion in December. It was $1.1 billion in January 1999. The deficit with the 11 nations that adopted the euro as a common currency increased to $3.7 billion from $3 billion in December. The deficit was $1.6 billion in January last year.

The U.S. trade deficits with France and Italy rose while the deficit with Germany decreased. The U.S. posted a trade surplus with the U.K. for the first time since August.

The U.S. trade deficit with Latin America rose to $1.2 billion from $864 million in December. That compares with a surplus of $671 million in January 1999. The figures don't include Mexico.

The U.S. trade deficit with Canada reached a record $4.3 billion, up from $3.4 billion in December and $2.5 billion in January 1999. The trade deficit with Mexico rose to $1.8 billion in January from $879 million in December. It was $1.4 billion in January of last year. Canada and Mexico, are this country's two biggest trading partners.

http://www.bakersfield.com/oil/i--1258408365.asp

-- Martin Thompson (mthom1927@aol.com), March 22, 2000