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The Commerce Department reported today that the U.S. trade gap widened in October.
The increase caught a lot of analysts by surprise because both imports and exports were down for the third month in a row. So you’d think the deficit would stay relatively stable.
Turns out the culprit was oil. Crude imports rose by a record amount in October. That’s kind of odd considering the economic state of affairs, as Marketplace’s Sam Eaton explains.
Riding the bus in to work this morning I noticed something out of sync with today’s $1.66 gasoline. The bus was packed in Los Angeles. And all across the country the hordes of people who started taking public transit and driving less when gas was $4, are sticking with it. So, a lot of people scratched their heads when October’s trade deficit rose because of a record jump in oil imports.
Analyst Tom Kloza with the Oil Price Information Service says stop scratching.
Tom Kloza: It’s a quirk or a fluke, depending on your semantics here.
Kloza says oil imports rose in October not because of any boost in demand, but because it marked the final days of the oil price bonanza.
Kloza: That was really before we got most of the information that suggested just how considerable the demand destruction was.
He says that lag effect actually creates even more downward pressure on oil prices going forward. Because even though people are using a lot less of the stuff, OPEC continues to churn out as much oil as it did during the boom times.
Economist Philip Verleger predicts the price of gas will soon drop as low as $1.25. And he says even if OPEC cuts supply when it meets next week, it won’t be enough to prop up prices.
Philip Verleger: The cuts they’re talking about today are almost certainly not enough given the rapidly deteriorating state of the global economy.
Verleger says in the short term that’s good news for the U.S. trade deficit and for consumers. But he says if cheap gas slows progress on things like fuel efficiency, the long run could be another story.
In Los Angeles, I’m Sam Eaton for Marketplace.
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