I just read a fascinating(ly wrong) piece on oil. It was a shocker headline exclaiming that we should all be prepared for oil prices in the range of $10 to $20.
This is the dramatic point where I place my hand on my forehead and shake my head in bewilderment, wondering what these poor souls don’t understand about the oil market. I’ve spilled too much ink in the last several months explaining “marginal costs,” the impacts of declining production amid a low-price environment, and how those two are going to conspire to send oil prices sharply higher than they are today. So, I won’t rehash that story today.
Instead, I’m telling you today that those who argue that you should avoid oil stocks because of their (misperceptions) about the oil market are doing you a great disservice.
At this point in world history, oil is as much an insurance policy as it is an investment.
It was too low.
Given the potential for certain events to unfold in certain ways, we could reach a point where the price of oil is no longer anchored to supply/demand fundamentals … but fear. And in that world, oil could be $300, $400 … $500 a barrel.
Blame it all on the Islamic State.
More Than a Terrorist Movement
The Islamic State, or ISIS, is the single greatest threat in the world today. Bar none.
It is the reason you want to own oil stocks in your portfolio. Because if ISIS accomplishes what it clearly aims to do, you can put whatever price tag you want on a barrel of oil. Prices will soar, and with them energy sector stocks will soar. That makes them an insurance plan against ISIS aggression.
For months, I have been looking at ISIS as just another geopolitical issue for the world’s leaders to manage. But listening to President Obama earlier this week try to discredit ISIS as nothing more than a band of terrorists, I realized that he and I — and everyone who sees them as such — have been missing a much larger truth.
ISIS is not a terrorist movement, despite its heinous fear tactics. It’s purely a religious movement, pursuing a purely religious endgame: the recreation of Islam in its purest form.
With geopolitics, there is the opportunity for a negotiated settlement. Politicians tend to be logical and they see the world in shades of gray. They’re generally willing to work toward a solution acceptable to all parties, even in war.
Religious fundamentalists are not logical. They see the world in black and white, good and bad. You’re either with us or against us. They see no room for compromise, nor do they seek it, for doing so would be heretical. And that is especially true — and especially nettlesome — with ISIS.
For ISIS, compromise is, literally, apostasy. It implies a deviation from their beliefs about the world they seek to recreate in the name of the Prophet Mohamed. Though they use terror tactics, they are precisely following the word that Mohammed spelled out in the Koran. Modern Muslims might — and many do — take umbrage with that, but their displeasure does not change the fact that the Islam of Mohammed is a violent, misogynistic, warmongering religion that calls for the crucifixion of Islam’s enemies, the beheading of foes, the enslavement of girls for sexual purposes and a continual need to wage jihad in the name of Allah.
ISIS has said over and again, and quite unambiguously, that it seeks to return the world — not just Muslim lands, but the world — to the Islam of Mohammed through the reestablishment of a caliphate, or an Islamic empire. We can — and apparently politicians in D.C. do — discount this as the boisterous ramblings of a terrorist movement punching above its weight class.
That is an arrogant mistake.
ISIS is overtly verbalizing its game plan. It is ISIS telling the world, “This is our cause and we will not be diverted from it through negotiations with non-believers. We will revive Mohammed’s Islam, and we will bring about the apocalypse that ushers us, the true believers, into paradise.”
That is a not a group of people open to a negotiated settlement.
They will do all that is possible in their effort to reclaim Islamic lands. And they will do all they can to thrust the world back into the 7th century, when Mohammed roamed the Muslim world and founded Islam. As part of their game plan, they are in pursuit of Arabian oil fields. They seek either control of those fields or, barring that, their destruction.
In Muslim lands, that will push economies back toward the 7th century. In Western lands, it will damage economies — possibly severely — that rely on oil for a modern lifestyle.
Invest in the Oil Patch Now
Will ISIS succeed?
Impossible to know. But it already controls Muslim land larger than the United Kingdom. And it is pulling in other terrorist groups as well as fanatical adherents from around the world — including Europe, the U.S., Canada and elsewhere — who have pledged allegiance to ISIS and its cause.
This is not a geopolitical chess match. It is a religious movement unwavering in it beliefs and its goals.
If they succeed in capturing more and larger Arabian oil fields, those who today believe oil is heading for $10 a barrel are going to look like fools. Those who own oil stocks as insurance against ISIS potentialities are going to see a handsome payoff as oil rockets unimaginably higher.
Buy Exxon. Buy Chevron. Buy Transocean. Buy Noble. Buy Diamond Offshore. Just buy something tied directly to the oil patch.
Until next time, stay Sovereign …
Jeff D. Opdyke
Editor, Profit Seeker