Another day, another opinion: Ethanol keeping oil prices down

Photo by Hummanna. Licensed under Creative Commons license 2.0.

Brazilian president Luis Inazio Lula da Silva is eager to shoot down anyone who says ethanol raises the price of food. There are plenty of people with their own ideas about that. But what about the impact ethanol has on oil prices? If we believe the Renewable Fuels Association, then ethanol plays a solid role in keeping oil prices about 15 percent lower than they might otherwise be (so, around $130+ per barrel if ethanol weren't in the picture). The reason for this is because burning ethanol reduces the world's demand for oil, and decreased demand lowers prices. The 15 percent figure comes from Merrill Lynch analyst Francisco Blanch, who spoke to the Wall Street Journal. While that may sound good at first blush, the reporter on the WSJ piece, Patrick Barta, begins his article this way: "The world's economy is acquiring a new energy addiction: biofuels." Anyone else hear warning bells?

[Source: Domestic Fuel / WSJ]

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