Is the US Energy Independent?

03/20/2014 9:18 am EST

Focus: ENERGY

Michael Peterson

Managing Director and Senior Equity Analyst, MLV & Co.

Michael Peterson, shares his forecast for the direction of US oil prices in 2014, and where they stand in direct relation to the global energy community.

TERRY:  I’m Terry Savage from MoneyShow.com with Michael Peterson, senior analyst at MLV and Company.  You are a specialist in energy and commodities.  I want to focus on energy on right now.  The United States is now energy independent.  We can export more than we can import.  It’s a pretty exciting turn of events.  It should mean that energy prices come down, right or wrong?

MICHAEL:  I wouldn’t say that we’re yet independent.  We’re certainly self-supplying more than we have in times past.  On a global basis, I don’t think that U.S. production will necessarily drive prices in one direction or another too much because you have to remember OPEC has been serving as a balancing function.  For every barrel that we produce, all else being equal, OPEC is really going to be in a position of taking a barrel offline to balance the market.

TERRY:  Is that a good thing?

MICHAEL:  For the U.S.?  Absolutely it’s a good thing.  We benefit not only from enhanced production and additional security of self-supplying, we also have a circumstances where we’re less reliant and less exposed to external factors namely OPEC.

TERRY:  What happens to prices if OPEC says we don’t want to let prices fall, we just won’t drill as much or pump as much.  What happens to energy prices in 2014?

MICHAEL:  For decades, OPEC has served that role.  They will increase or decrease output to balance the market.  They look at inventories with price kind of falling out as a secondary consideration.  I think that their function of balancing the markets is likely to persist in 2014.  We’re over supplying the global market by let’s say a quarter of a million barrels per day.  It ink there is some chance that they might want to take some barrels off line.  Two reason for that.

TERRY:  Before we get into the depths of that, give me the price of oil at the end of the year.

MICHAEL:  I think the price of oil is going to be about $100.  I don’t think we’ll see a meaningful change.

TERRY:  To stay around there.

MICHAEL:  We’ll have a lot of volatility between here and there for sure, but I don’t expect to see that prices will run an average per year.

TERRY:  Natural gas, not necessarily parallel as we’ have seen over the last four or five years.  What’s the outlook for that?  We’ve had a very cold winter and of course a surge in price recently.

MICHAEL: I think the prospect for natural gas long term is great, near term is very modest.  I would say $4 prices on average in 2014.

TERRY:  One last thought, if you were to invest in the energy sector, you look at your portfolio, what do I do in energy that’s a big field, what would you consider buying?

MICHAEL:  I would look at parts of energy that have an opportunity to grow independent of the commodity.  We just said prices are likely to be largely unchanged 2013 to 2014.  I would look for companies that have an ability to either increase volumes and grow their earnings that way or benefit from efficiencies.

TERRY:  Give us some names.

MICHAEL:  Mid-Com Energy is a great master Limited Partnership.  They’re focused on secondary recovery within the oil patch meaning after a field has exhausted its normal productive capacity, Mid-Com comes in with water floods and reinvigorates the field.

TERRY:  There’s a lot to know.  Where do we find out more of your thoughts?

MICHAEL:  www.mlvco.com.

TERRY:  Thank you very much for joining us.  Michael Peterson of MLV.  I’m Terry Savage from MoneyShow.com.

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