Crude oil futures rebounded today after losing nearly $2 on yesterday's news of the death of al-Qaeda's number two leader, Abu Musab al-Zarqawi.
NYMEX oil for July delivery rose $1.20 to $71.30 a barrel today, trimming this week's losses to around 2%. Take a quick look…
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The drop in oil prices yesterday was groundless. And I hope that you used that opportunity to load up on some of oil and gas companies on the Wealth Daily portfolio. Or if you're a member of the Pure Energy Report I hope that you got a chance to jump in some stocks that are up nice today. One is even up 16% for the day!
So why the big drop yesterday?
The death of al-Zarqawi fanned the flames of hope of a more peaceful Iraq which would — as least as speculation suggests — turn the tide for Iraq's struggling oil sector, particularly in the north part of the country.
But here's the thing: The bloodshed isn't going to stop.
In fact, over the next couple of days and weeks I think the violence might actually get worse., in turn driving oil prices even higher.
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Cutting Off the Head Won't Kill the Body
When the news of al-Zarqawi's death broke, the talking heads in mainstream media and many politicians sounded the horn of victory.
Yes, the strike on al-Zarqawi was a victory for the U.S. armed forces. But the insurgency isn't going to throw in the towed because of his demise. And the rising death toll, which claims nearly 1,200 people a month in Baghdad alone, isn't going to stop.
Now it's true that al-Zarqawi masterminded the deaths of hundreds of innocent civilians including the February bombing of a significant Shi'ite mosque in Samarra that set off the current round of sectarian violence.
But al-Zarqawi wasn't the Achilles' heel of al-Qaeda. And for that matter, neither is Osama Bin Laden. These men are merely players on the bigger al-Qaeda stage.
You see, the insurgency is not a single-headed beast. Rather it's a loose association of several different groups of folks that rarely act in a coordinated way.
So in this case, cutting off the head won't kill the body.
Moreover a new head will eventually emerge to replace al-Zarqawi if it hasn't already done so. And there's no telling what kind of nutjob that'll be.
Now, I don't think it's unreasonable in the least bit to assume that the death of al-Zarqawi will only create more violence.
In fact, fundamentalists have already begun to take their revenge.
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Violence in Iraq Likely to Continue
Yesterday gunmen kidnapped a senior official of Iraq's oil ministry after he left work in Baghdad. Also, a string of bombs in Baghdad killed at least 31 people today and wounded dozens of other.
This morning, in an Internet statement Abu Abdel-Rahman al-Iraqi, one of al-Zarqawi's deputies, said, "The death of our leaders is life for us. It will only increase our persistence in continuing holy war so that the word of God will be supreme."
So it doesn't appear that we've stopped the violence at all. Rather it looks as if we've only stirred the pot.
I expect harsh retaliations against the U.S. for the killing of al-Zarqawi. And if history is any indicator, violence always causes oil prices to rise.
Bottom line: It's asinine to assume that the death of al-Zarqawi would completely stop the al-Qaeda related violence in the region as an insurgency is not defined by the person at the top, but by its entire network.
And I think that because the U.S. has killed one of al-Qaeda's most beloved leaders, the terrorist organization will strike back hence pushing oil prices higher than they are today.
What does that mean for investors?
Simple. Continue to buy oil companies while we're still sitting on oil under $72 a barrel. Any retaliation against the U.S. — especially an attack on U.S. soil — will send oil prices and energy company valuations higher.