The addition of ethanol to US gasoline supplies not only helps keep gasoline prices down, but also helps keep the price of crude oil lower, said the US Renewable Fuels Association in a statement today (17th April). After weeks of negative headlines the RFA was keen to put the record straight with its take on the markets.

While ethanol production has taken much of the blame for the rise in commodity prices, the RFA were at pains to point out that prices for commodities like wheat and rice have risen higher than others and that these are crops not used in ethanol production.

"Without the expansion of biofuel production and use in the US, Brazil and elsewhere, world oil demand would increase and so would the price.  Merrill Lynch analyst Francisco Blanch told the Wall Street Journal that world oil prices would be 15% higher.  At today’s record prices, that would equate to $132 per barrel of oil", said the RFA. 

It went on to highlight that according to one estimate, as of 4th April, the US consumed over 1.9 billion gallons of ethanol, the equivalent of nearly 46 million barrels of oil.  Without which, it says, the oil industry would have had to draw down gasoline inventories and import those barrels.

Explaining the underlying fundamentals the RFA said that worldwide oil production is expected to reach 87 million barrels per day in 2008.  Oil demand is growing in China and other rapidly developing countries by 1 million barrels per day according to the Energy Information Administration.

"With little excess oil production capacity and rapidly growing demand, prices for crude oil have already reached an all time high of more than $114 per barrel. Clearly, without ethanol helping to expand fuel supplies, gasoline prices would undoubtedly soar to even greater heights", concludes the RFA.

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