In October, the trade deficit declined to $40.3 billion from
the upwardly revised figure of $43 billion for the month of
September. Particularly notable was the fact that exports of
goods and services increased by 1.8% to a record monthly high of
$192.7 billion. This was an 18% increase from September figures.
On the other hand, imports increased only by 4.5%, to $233.3
Increase in Global Demand
The decline in the level of deficit indicates that the global
economy has turned the corner. Shipments to both Europe and China
increased appreciably. Only exports to Japan remained largely
static, while imports increased.
Exports for nearly all product categories increased from the
previous month. These include consumer goods -- mostly jewelry,
capital equipment, soybeans and corn. However, it seems the
overall increase in exports was primarily fueled by an increase
in the export of petroleum products.
Petroleum Exports Surge
Oil exports increased by 11% in October, after adjusting for
inflation, to $7.7 billion. On the other hand, petroleum imports
increased by only 1.5%, to $18.2 billion. There has been a 9.3%
increase in exports of petroleum products for the first 10 months
of 2013, compared to the same period last year.
Then again, imports have decreased by 11.1% during the same
period. This decline is primarily a result of a fall in global
prices. The surge in petroleum exports in particular has meant
that through October, the trade deficit was 10.6% lower than last
year. This was a result of a 2.7% increase in exports as well as
the fact that imports remained virtually unchanged during this
The existence of abundant reserves of natural gas trapped within
shale rock was known even earlier. New methods of extraction such
as horizontal drilling and hydraulic fracturing ("fracking") have
provided access to shale reserves which were earlier
inaccessible. More importantly, they have also lowered associated
Some of the leading players in the U.S. shale arena are
Chesapeake Energy Corporation
EOG Resources, Inc.
Anadarko Petroleum Corporation
Devon Energy Corp
) are other major producers.
A Lasting Impact on Exports
This week, the Energy Information Administration (EIA) said the
U.S. is expected to produce 9.6 million barrels of crude oil per
day by 2016. This level was last achieved in 1970. However, crude
oil production is expected to flatten and ultimately decline
However, the EIA said the production of natural gas will continue
to increase. Natural gas production is expected to rise by 56%
between 2012 and 2040. Earlier this year, the Department of
Energy cleared plans for a natural gas terminal at Cove Point on
Maryland's Chesapeake Bay. The terminal will cost an estimated
$3.8 billion and will export .77 billion cubic feet of natural
gas per day to Japan and India.
Benefits Outweigh Costs
The terminal is the fourth facility being built to export LNG to
countries with which the U.S. does not have a free trade
agreement. In May, the Obama administration had provided approval
to a $10 billion facility in Texas known as Freeport LNG. Through
these approvals, the Department of Energy has clearly indicated
that the benefits from such exports exceed the possible costs.
There are some concerns that excessive exporting of natural gas
may result in a hike in domestic prices. There are also concerns
about the extent of global demand in the future, since the likes
of China are gearing up to increase production. However, it is
clear that shale gas has had a beneficial impact on the trade
balance. Therefore, for the present, its benefits seem to
outweigh the costs presently, at least in this regard.
ANADARKO PETROL (APC): Free Stock Analysis
CHESAPEAKE ENGY (CHK): Free Stock Analysis
CHEVRON CORP (CVX): Free Stock Analysis
DEVON ENERGY (DVN): Free Stock Analysis
EOG RES INC (EOG): Free Stock Analysis Report
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