The effect of oil price changes on the balance of trade

Prices of energy raw materials on world markets are strongly affecting not only changes in domestic price levels, but also external trade relations. For the Czech Republic, which is largely dependent on imports of energy raw materials, the price of oil and the price of natural gas, which is to a large extent derived from it, are an important factor of trade balance and current account developments. Prices of imported oil are very closely linked to world oil prices. The importance of this trend for the trade balance has strengthened in recent months owing to the oil price turbulence on global markets.
Chart 1

In the SITC classification, which divides trade commodities into 10 groups, oil and natural gas are the main items in Group 3 (Mineral fuels, lubricants and related materials). Prices of Ural crude are a key medium-term factor for changes in the balance of trade in this group.

Chart 2

Prices in Group 3 accounted for 76% of the overall deterioration of the trade balance in the first eight months of 2000 (compared with the same period of 1999).

Table 1 Breakdown of deterioration in overall trade balance
(Jan - Aug 2000)

  CZK billions contribution in %
Year-on-year change in balance (Groups 0 - 8) -43 868 100,0
of which:    
changes in material volume of exports and imports -13 114 29,9
price effect in Group 3 -32890 75,0
price effects in other groups 2 136 -4,9

Chart 3

Chart 4