Crude oil and Sugar

Brazil's cane mills choose each season how much cane to turn into sugar or ethanol, and ethanol competes with petrol, so oil and petrol prices pull cane away from sugar; in India the government sets ethanol prices, which weakens that market link.

Crude oil (energy) and Sugar (commodity): 4 relationships.

How they are linked

1. Brazil mills choose sugar or ethanol

Substitution · Strong · Higher petrol prices → more ethanol, less sugar

Many Brazilian mills can shift cane between sugar and ethanol, so when ethanol pays more than sugar they cut the sugar mix, tightening world sugar supply.

• 611.15 Mt cane crushed in centre-south Brazil, 2025/26
• 40.43 Mt sugar produced, 2025/26
• 47% expected sugar mix for 2026/27, revised down from 48%

Early in the 2026/27 harvest only 33% of cane went to sugar, and sugar traded almost 4 c/lb below ethanol parity, so mills favoured ethanol. Corn ethanol, 27% of Brazil's 33.7 billion litres in 2025/26, is a growing source that loosens the tie between ethanol and cane.

Sources: Czarnikow (CZ); Czarnikow (CZ)

2. Petrobras pricing filters oil

Cost and price · Medium · Crude oil → Brazilian petrol → ethanol

Ethanol competes with petrol at the pump, and Petrobras, with over 80% of Brazil's refining, sets petrol prices, so world oil reaches ethanol and sugar through its pricing decisions.

• about 30% rise in Brent after the 2026 Middle East war began (to June 2026)
• BRL 1.32 a litre Brazilian petrol price below international parity, June 2026 (Abicom)

In early June 2026 Petrobras raised petrol by BRL 0.48 a litre, while a tax subsidy of BRL 0.44 a litre offset most of it, so only part of the oil shock reached ethanol. When domestic petrol lags world prices, the pull from oil to sugar is muted.

Sources: Czarnikow (CZ)

3. India sets ethanol prices

Policy · High in India · Administered ethanol price → sugar diversion

In India, oil companies buy ethanol at government-set prices by feedstock, so mills divert cane to ethanol according to those prices and allocations rather than to crude.

• Rs 65.61 a litre price for ethanol from cane juice, sugar syrup and sugar, ESY 2025-26 (excluding GST and transport)
• Rs 60.73 a litre price for ethanol from B-heavy molasses, ESY 2025-26
• about 28% share of 2025-26 ethanol allocation from sugar feedstocks

Allocations tilted to maize and surplus rice, with orders of only 2.89 billion litres from sugar feedstocks against bids of 4.72 billion. The government said blending held the rise in retail petrol prices to 7 to 8% while international crude rose 70 to 80% during the 2026 oil shock, so ethanol policy cushions consumers from oil while shaping sugar supply.

Sources: BioEnergy Times; Informist Media

4. Price link: energy price link

Cost and price · Weak · Both ways

High oil prices make Brazilian ethanol more attractive, so mills divert cane from sugar, which supports sugar prices.

• 0.28 monthly change correlation
• 0.28 12-month change correlation
• 0.35 fitted elasticity

The link is weak because Brazilian petrol pricing, Indian export rules, weather and cane yields often matter more to sugar than oil does. It strengthens when oil moves are large and pass through to Brazilian pump prices.

Sources: Material Insights (World Bank, FRED, IMF data)

For investors

Key learnings

1. Brazil's sugar mix, expected at 47% in 2026/27, is the main channel from oil to sugar, as mills favour ethanol when it pays more.
2. Petrobras pricing and fuel tax subsidies decide how much of an oil shock reaches ethanol, so the oil to sugar link is weak, correlating at 0.28.
3. In India, administered ethanol prices and allocations, only about 28% from sugar feedstocks in 2025-26, matter more than crude for sugar diversion.

What to track

• Centre-south Brazil sugar mix: A lower mix means less sugar and tighter world supply (Fortnightly · UNICA)
• Ethanol parity versus raw sugar: When ethanol pays more, mills cut sugar (Weekly · CEPEA ethanol and ICE sugar No. 11)
• Petrobras petrol price changes: How far oil moves reach Brazilian ethanol (As announced · Petrobras)

For policymakers

Key learnings

1. India's ethanol prices, Rs 65.61 a litre for cane juice ethanol in 2025-26, steer how much sugar is diverted, not world oil prices.
2. Blending cushioned Indian petrol prices in the 2026 oil shock, but tilting allocations to grain reduced sugar mills' ethanol revenue.
3. Brazil's mill flexibility means world sugar supply rises when oil is cheap, which affects India's export opportunities.

What to track

• Ethanol procurement prices and allocations by feedstock: How much cane goes to ethanol rather than sugar (Each ethanol supply year · Ministry of Petroleum and OMCs)
• Sugar diverted to ethanol: Effect of ethanol policy on sugar availability (Seasonal · ISMA and Department of Food and Public Distribution)

India

India sets ethanol purchase prices by feedstock, Rs 65.61 a litre for cane juice ethanol and Rs 60.73 for B-heavy molasses in 2025-26, and only about 28% of the 2025-26 allocation came from sugar feedstocks.

Sources

1. CS Brazil 2026/27: sugar and ethanol flexibility is the norm, Czarnikow (CZ) (2026)
2. UNICA update: end of the 2025/26 harvest and beginning of 2026/27, Czarnikow (CZ) (2026)
3. India's ethanol procurement cost tops Rs 71/litre for OMCs in FY26, government says, BioEnergy Times (2026)
4. India's ethanol policy tilts heavily to grains, squeezes sugar sector, Informist Media (2025)
5. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)