2014's Big Energy Trend

 | Dec 05, 2013 | 4:30 PM EST
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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 U.S. as opposed to the rest of the globe.

Here in the U.S., 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 such as Continental (CLR) or Eagle Ford winners such as 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), here are the three most important factors to conside

1. the price of domestic crude in the coming year

2. the relative production costs and

3. the success rates as plays continue to mature.

Several articles will be written on each of these three factors, but again, with limited time and space, my thoughts are that these hyped stocks will face more headwinds in the future 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.

However, none of this will in any way stem the massive flow of new production here in the U.S. In the long history of failed energy policies I have witnessed (and is the subject of my new book), U.S. 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 different picture emerges. Saudi oil production is close to reaching its limit and therefore, the "swing" barrels that they have used when other production fell is no longer available. While there are many hopes from recent diplomatic efforts of freeing up oil from other Middle Eastern producers, I frankly don't buy any of it. I believe the Iranian nuclear deal is doomed to failure and their potential 3.5 million barrels will remain in the ground. Iraqi Kurds have set up a private network of sales to Turkey -- likely to help precipitate civil war there. Libya has literally two governments now and Egypt remains a likely spot for oil terrorism.

To all this add the decreasing production from the North Sea and the ever-unstable Nigerians and you've got an oil market outside the U.S. that continues to risk entirely to the upside. Will any or all of that improve in 2014? It could -- but it could also much more easily worsen.

That bifurcation of supply risks in the global market contrasted by the mania for production here in the U.S. will be the most important energy trend in the coming year -- along with the obvious price risks that will accompany it. From that trend, you will find the best investment opportunities for the coming year.

Now, it's time for you to do your homework before next week. Before I give you my best ideas for 2014 based upon this epic energy trend, I want to hear yours, so send me an email at Dan.Dicker@thestreet.com.

See you next week.

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