The trade deficit widened in October, much to everyone’s surprise, in part because oil imports grew month over month. How could this be? Everyone knows oil prices in October were way down from September:
MarketWatch: The imported value of crude oil rose sharply to $29.8 billion in October, despite a record decline in the average price per barrel of crude oil to $92.02 from $107.58 in September. The U.S. imported 324.2 million barrels of crude oil in October, up from 253.3 million in September.”
That’s a big volume jump in a slowing economy, so what gives? Brad Setser, who knows the trade gap better than anyone, says it’s noise:
Oil imports were down 14% in volume terms in September and were up a bit over 2% in October. That is noise. The 3m rolling average for oil import volumes is still down 6% y/y — and the y/y fall is around 5%. But the rise in volume offset the fall in price (the average price of imported oil fell from over $107 a barrel to $92 a barrel), so the petrol deficit rose by $0.8b to $32.7 billion in October.
The good news is that the average price of imported oil still has a lot further to fall. I would guess that the 2008 petrol deficit (netting exports out) will be close to $400 billion. It could fall to $200-250 billion in 2009.
The bad news, says Setser, is that the “constellation” supporting strong US manufacturing — a weak dollar, and strong foreign demand — is now dead, with the situation previsly reversed.