Question

Net U.S. energy imports have decreased every year since 2016. Last year’s change in net energy trade
(crude oil, natural gas, coal, and petroleum products) in the U.S.—from 3.6 quads of net imports in 2018 to
0.8 quads of net exports in 2019—was the largest change in U.S. energy trade since 1980. How would the
low oil price affect the U.S. crude oil trade (import and export) in 2020? Apply the D-S model.

Answer 1

Energy imports and Exports have a great fiscal bearing on almost every economy across the globe. The United States being no different. Over the years, the country has moved over however to uncovnentional ways of dealing with its power and oil requirements.

Electric vehicles are common today in the United States, and other similar techniques such as solar energy is rapidly used in the country as it avoids imports into the country. As a result of this reduced demand, the United States has been able to become an exporter of oil thanks to the ever decreasing home grown demand and the gradual increase of supply in the country.

Having said that, the expected price of crude oil is going to go further down as the economies struggle due to the corona virus pandemic. This prices of oil are at all time lows, and the global demand is largely hit due to the same.

As a result, in my belief, both exports and imports in the country will decline for oil. The reason behind this is the simple theory of demand and supply. Oil in the international market is seeing fewer demand, and there are numerous countries which are now able to produce oil locally and fulfill this shortened demand. The United States supplies to numerous such countries which will now stop. Further, local imports are themselves declining as demand is shifting and lesser people demand for oil due to both lock down and change in technology.

The same can be explained with the help of the following diagram:-

Here we can clearly see that the price drops from P to P1 and the quantity changes from Q to Q1 indicating a shift in demadn and a decline in supply for oil. As a result of this, the overall imports and exports are expected to fall.

Please feel free to ask your doubts in the comments section.