March 19 (Bloomberg) -- Sugar dropped to the lowest in almost two months on speculation that falling energy costs will weaken demand for sugar cane-based ethanol.

Crude oil fell the most since August, partly because U.S. petroleum demand dropped in the past four weeks. The sweetener's link with crude oil will strengthen as more fuel derived from sugar is consumed, displacing gasoline, Czarnikow Group Ltd. said today in London. Czarnikow also forecast a sugar surplus for next year.

``Sugar is falling with crude oil,'' said Fain Shaffer, president of Infinity Trading Corp. in Medford, Oregon.

Sugar futures for May delivery fell 0.53 cent, or 4.3 percent, to 11.75 cents a pound on ICE Futures U.S., the former New York Board of Trade. Earlier, the price touched 11.52 cents, the lowest for a most-active contract since Jan. 25.

Sugar has advanced 8.6 percent this year, while crude has gained 8.9 percent.

``Sugar prices are likely to be guided by trends in the energy markets,'' Czarnikow, a London-based sugar broker, said in a report. Sugar supplies may surpass demand by 1.9 million metric tons next year, Czarnikow said, compared with a 10 million surplus forecast in the current crop year.

Commodities tumbled today, led by precious metals and wheat. The UBS Bloomberg Constant Maturity Commodity Index of 26 futures fell 4.1 percent to 1,428.50. The gauge reached a record 1,573.84 on Feb. 29.

Crude-oil futures for April delivery fell $4.94, or 4.5 percent, to $104.48 a barrel on the New York Mercantile Exchange.

To contact the reporter on this story: Ron Day in New York at rday1@bloomberg.net.

Last Updated: March 19, 2008 16:27 EDT