Despite China's growing importance in the global oil market, the US remains by far the world's largest consumer and importer of crude and products. And with the run-up in oil prices over the past four years, the country is paying dearly for its ongoing "addiction to oil" -- the US' oil import bill last year came to some $327 billion and should easily top $400 billion this year. That's an increase of some 300% from 2002 at a time when a very weak dollar is raising the price of most imported goods and playing havoc with the country's trade deficit. The US paid out a record $245 billion last year for about 10 million barrels per day of crude imports and another $82 billion for about 3.5 million b/d of imported oil products. This year it looks like paying out even more, with crude production continuing to fall, demand for imports of high-priced transport fuels remaining relatively high, and oil around 30% higher year-on-year so far in 2008. In 2002, before the current bull market for oil prices began, the US' crude imports cost it only around $79 billion. In 2006, the total oil import bill accounted for just under 40% of the overall trade deficit -- versus about 25% in 2002 -- adding to the overall trade imbalance and stoking inflation. Ironically, the weak dollar, which has helped drive up oil prices, has actually helped keep the trade imbalance somewhat in check by making exports cheaper. Although the US also exports around 1.4 million b/d of refined products, the majority of these are lower-value heavy products like petroleum coke and residual fuel oil.

With oil prices this year set to be even stronger than they were in 2007, any moderation in the US' oil import bill is going to have to come from a reduction in import levels. But while demand growth has been crimped in recent years both by high prices and the drive toward greater fuel efficiency, the higher quality of crude imports the US now requires and the lightening of its product import mix are creating pressures that threaten to push the cost of imports even higher. With new product specifications put in place in 2006 for cleaner diesel and gasoline, product imports have come at a higher cost. Furthermore, more expensive light, sweet crude is in higher demand because domestic refiners are also producing cleaner products. US crude imports rose by 1 million b/d between 2000 and 2004, but have since leveled off. With demand expected to remain flat or even contract this year, imports ought to remain around the 10 million b/d level. For 2009, the Energy Information Administration is actually predicting a drop in crude imports to an average of 9.8 million b/d, due to flattening demand projections and a revival in domestic production.

Although "energy security" and dependence on the Mideast get the headlines, maybe the huge amounts of money going out of the economy to pay for oil should get the attention of politicians. Much US oil trade is continental, with relatively secure supplies from Canada and Mexico accounting for just under one-third of US crude imports. Canada also tops the list of oil product exporters to the US, supplying an average of 561,000 b/d in 2007. US energy security is also boosted by the global nature of the oil market and oil's essential "fungibility," as Venezuela's recent, hastily abandoned threat to cut off oil exports demonstrated (PIW Feb.18,p1).

Figures in $ billion. p-preliminary,
e-estimated based on $90/bbl crude.
Source: US EIA, PIW estimates.