One is that oil is used for many different things, only one of which is to manufacture gasoline. The ethanol could replace nearly all of our need for gasoline, and the soy deisel, or even vegetable oil could replace all of our need for oil-based deisel fuel. There are other alternatives for many of the other products that are currently manufactured from oil as well. It is really just a question of investment cost vs. benefit.

In other words, it is Currently only 1% of all the oil consumed that is replaced by ethanol, however, that number could be much higher...

The argument that oil must be consumed in the growing, distiling, and processing of ethanol is really weak as oil is also consumed in the oil refining process: Refining oil also takes a tremendous amount of heat. That's not a cost that only applies to ethanol production...In Addtition, transporting oil takes huge tankers, pipelines, etc...all of which also consume energy.

If you are going add those costs to the equation for ethanol, then you need to add them to the cost of oil as well. But why bother? The market already does that for you: The price of a gallon of ethanol is currently something like 35% less than the cost of a gallon of gasoline.