Oil Prices and Ethanol Production in 2007

In 2007 the following monthly U.S. crude oil prices and ethanol production were recorded:

Month, 2007 | Crude Oil Prices $/Barrel | Ethanol Production 000 Gallons |

J | $54.51 | 488,082 |

F | $59.28 | 453,390 |

M | $60.44 | 499,464 |

A | $63.98 | 492,072 |

M | $63.45 | 528,066 |

J | $67.49 | 527,226 |

J | $74.12 | 548,142 |

A | $72.36 | 565,236 |

S | $79.91 | 555,324 |

O | $85.80 | 588,756 |

N | $94.77 | 602,592 |

D | $91.69 | 636,762 |

An ordinary least squares regression of crude oil prices and ethanol production gives the following equation (PLEASE READ THE FOOTNOTE).

Crude Oil Price = -52.56 + 0.000231 * Ethanol Production

The t-statistic for Ethanol Production is 7.91 and the equation's R^{2} is 86.2%. Both are statistically different from zero at 99%.

If you use the regression equation to predict the December crude oil price based on the increase in ethanol production the result is $94.58 per barrel, only $2.89 different from the actual price (PLEASE READ THE FOOTNOTE).

We can thus say with absolute certainty that increasing U.S. ethanol production is the real reason that crude oil, and thus gasoline, prices have sky-rocketed in since January, 2007 (PLEASE READ THE FOOTNOTE):.

Data: U.S.Department of Energy (Prices) and Renewable Fuels Association (Production)

Footnote: Anyone with even an introductory course in statistics would raise serious questions about whether this regression proves anything about the relationship of ethanol production and crude oil prices. All we can really say for sure was that in 2007 there was a strong correlation. The relationship is VERY likely to be spurious. However, we cannot rule out the possibility that OPEC is taking biofuels production into account in setting their production levels. Also, producing ethanol adds to oil demand for corn production, refining, and transportation.

This is, however, an example of the kind of twisted statistics and logic used often by ethanol advocates to "prove" their points.