Severest Drought In 50 Years, Oil Refinery Explosion In Venezuela, Tropical Storm Isaac, And The Federal Reserve Combine For What Could Become A Perfect Storm Of Inflationary Pressures

Monday, August 27, 2012 07:01
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Severest Drought In 50 Years, Oil Refinery Explosion In Venezuela, Tropical Storm Isaac, And The Federal Reserve Combine For What Could Become A Perfect Storm Of Inflationary Pressures

Tags: commodities | Federal Reserve | oil

Gas prices have skyrocketed recently on the perception that threats to supply are imminent. An oil refinery explosion in Venezuela killed 39 people. Tropical Storm Isaac followed on the heels of the explosion and shut down rigs in the Gulf of Mexico.

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Twenty-four percent of oil production and 8.2% of natural gas output in the Gulf has been stopped as a result of Isaac. The shutdown, although temporary, will affect gasoline supplies.
 
Other commodities also rose. Futures on soybeans due to be delivered in November reached a record high due to the worst drought in 50 years.
 
But the euro gained .1% against the dollar and against the yen on hopes of productive talks between German and French finance ministers scheduled to meet soon to discuss the debt crisis in Europe.
 
Treasuries held their gains on hopes that Fed chairman Ben Bernanke will outline a successful case for Fed intervention at a meeting this week in Jackson Hole.
 
The price increases on both the oil and soybean fronts are reminders that economic conditions can change rapidly, especially in an accommodative environment.
 
Isaac could exacerbate these temporary concerns about oil supply.
 
Translation? Watch out for inflationary forces in what could turn out to be a perfect combination of the Fed's long-term accommodative stance and temporary supply constraints from natural phenomenon.

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