We’re getting to the end of the year and it’s nearing time for my ‘best stock’ selections for 2014, so you might think that the next column naming these stocks would be the one to read. It’s not – my track record on picking stocks that will perform for a 12-month period isn’t so great. However, my analysis of what drives those choices is -- in fact, very good indeed. And that’s why THIS column is the one to read.
So, what are the most important trends in energy going into 2014? Space and time are limited, so let me talk about the most important one I see: The bifurcated market appearing around crude oil here in the US as opposed to the rest of the globe.
Here in the United States, much ink and hype has been devoted to the rapid rise in production from oil shale, and much of the money to be made in oil stocks was directly related to this trend in 2013 – witness Bakken stocks like Continental (CLR) or Eagle Ford winners like EOG Resources (EOG) or the Permian parabolic move of someone like Pioneer Natural Resources (PXD) - The question for next year is whether that rate of growth can possibly be sustained and whether these stocks have their best days ahead or behind them. Without discussing specific stocks (let’s leave something for next week), let’s point out the three most important factors to consider: The price of domestic crude in the coming year, the relative production costs and the success rates as plays continue to mature. There are several articles to be written on each of these three factors, but again, with limited time and space, my thoughts are that these hyped stocks will find far more headwinds than in the year now ending: Domestic crude prices are likely to see continued deep discounts to global prices, production costs are ramping as the plays become mature and the stunning success that was found in small sections of each of these plays is unlikely to be repeated to such a degree. None of this will in any way stem the massive flow of new production here in the US, however. In the long history of failed energy policies I have witnessed (and is the subject of my new book), US shale production will rank high, stupidly overproducing for the next several years, I predict, at the same market-crushing pace as natural gas did during the last decade.
On the global oil front, an entirely…