Ron Miller, CEO of Aventine Renewable Energy Holdings, has just been giving evidence to the Senate Agriculture, Nutrition and Forestry Committee.

I was particularly interested to see his claim that US ethanol had ". . . reduced oil imports by 170 million barrels of oil, valued at $11.2 billion" - that would correlate to the price of oil being nearly $66 a barrel.

With oil prices dropping yesterday to as low as $53 that is going to be a harder argument to make this year. And yesterday ethanol stocks retreated not just on lower oil prices but on forecast of a forthcoming ethanol glut. Thomas Weisel Partners analyst Kevin Monroe said (in the same article)

"With the potential for a near doubling of ethanol capacity from the current 5.4 billion gallon per year levels over the next 18 months, coupled with a potential smaller estimate than our original estimate of ethanol demand due to a lack of discretionary blending, we believe the potential for an oversupply situation in the second half of 2007 is significant,"

A word of caution though - increased ethanol production will not necessarily lead to lower costs and may possibly do quite the reverse. The competition for a limited supply of corn feedstock has raised corn prices to a 10 year high.