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Brazilian Mines and Energy Minister Edison Lobao stated that the government will reduce the admixture of alcohol with gasoline provided to service stations from 25 to 20 beginning 1 October.
Brazil uses sugarcane to produce ethanol as an additive to gasoline. While Brazil is currently the world’s leading exporter of ethanol, the U.S. Energy Information Administration recently wrote in its weekly petroleum report, "For the remainder of 2011, it is likely that the United States will surpass Brazil as the world's largest ethanol exporter due to recent supply shortages and resulting high sugar prices in Brazil."
High sugar prices are making U.S. corn-based ethanol more competitive and allowing U.S. ethanol producers to enter markets that previously exclusively imported Brazilian ethanol.
The government’s decision is the result of a disappointing cane crop and the incentive of higher global prices to turn more of the harvested sugarcane into sugar rather than fuel.
Lobao said, "We realized that next year's harvest will not be much better than the current one. So we need to act early, considering both the present and the future on a precautionary basis," O Estado de Sao Paulo newspaper reported.
Further complicating the picture, indigenous Brazilian demand for ethanol has outpaced production as its growing middle class buys more flex fuel cars.
By. Charles Kennedy, Deputy Editor OilPrice.com
Charles is a writer for Oilprice.com