Energy Department Predicts How Extreme Climate And Weather Will Disrupt US Energy Systems

The Department of Energy (DOE) has just released their state of the art model built to predict how climate change and weather will impact energy systems here in the United States. There is no other governmental agency more eager to understand how encroaching seas, category 5 hurricanes, and heat waves will impact energy consumption and potentially energy strain on the US energy system.

In collaboration with several DOE National Laboratories, the Energy Exascale Earth System Model (E3SM) has been released to the general public and broader scientific community after four years of development.

The E3SM model was built to predict how climate and weather variability will impact the US energy systems in the decades to come. The model provides our collective best estimates of how climate change will alter energy needs across the country. The model can predict, at unprecedented resolution, water cycle events such as flooding or droughts, temperature swings such as heat waves, sea level rising and coastal flooding, and increased Atlantic hurricane intensity.

More specifically, the model can predict how the US energy sector would be impacted by 150 mph winds or temperature anomalies across the Atlantic Ocean tied to increased hurricane strength and likelihood. The model pushes the frontiers in model resolution and the ability to focus in on certain areas to better refine model results for a given region. In addition, the model better represents how human activities and natural processes impact one another and affect US energy needs.

The model required the development of the Exascale Computing Initiative, which developed a computing system capable of one billion billion calculations per second (10^18). The thousand-fold increase in processing speed compared to supercomputers just a decade ago are necessary to carry out these complex models coupling ocean, land, and atmosphere. This allows for more detailed resolution into the simulations of future climate and weather.

While climate models are inherently limited in their ability to predict future climate and weather, they are a useful tool in assessing the potential ranges of the impact human influences have on the energy sector. While this specific model derives from the Department of Energy, be assured the largest international oil and gas companies have their own proprietary models to predict similar scenarios.

When in the business of energy, predicting future climate and weather probabilities is worth trillions. This helps inform where to build refineries, pipelines, the break-even cost of oil and gas extraction, and strain and demand on electric grids. In addition, predicting climate and weather anomalies helps better predict where renewable energy sources outcompete hydrocarbon energy sources and how to best build renewable systems.

Oil falls about 1 percent after surprise U.S. crude build

Oil prices fell about 1 percent on Wednesday after data showed U.S. crude inventories unexpectedly rose 1.6 million barrels last week, weighing on market sentiment.

Brent June crude futures LCOc2 settled 70 cents lower at $68.76 per barrel, while the front month May contract LCOc1, which expires on Thursday, fell 58 cents, or 0.8 percent, to settle at $69.53 a barrel.

West Texas Intermediate (WTI) crude CLc1 futures for May delivery fell 87 cents to $64.38 a barrel, a 1.3-percent loss.

U.S. crude stockpiles USOILC=ECI rose as net imports USOICI=ECI soared by 1.1 million barrels per day, according to data from the U.S. Energy Information Administration.

Stocks at the Cushing, Oklahoma, delivery hub for U.S crude futures USOICC=ECI also rose 1.8 million barrels, EIA said.

“Oil supplies at Cushing, Oklahoma are starting to replenish, which is bearish for prices, but they have a long way to go to near normal levels of supply,” said John Kilduff, partner at energy hedge fund Again Capital LLC in New York.

U.S. crude production also inched up last week to fresh record high at 10.433 million bpd. Output has risen by nearly 25 percent in the last two years to over 10 million bpd C-OUT-T-EIA, taking it past top exporter Saudi Arabia and within reach of the biggest producer, Russia, which pumps around 11 million bpd.

U.S. crude’s discount to Brent WTCLc1-LCOc1 widened to as much as $5.22, the biggest since Jan. 24.

“Costs in the U.S. are getting to be a little bit less expensive to drill and that’s one of the aspects that is potentially driving the spread between Brent and WTI,” Mark Watkins, a regional investment strategist at U.S. Bank Wealth Management said from Salt Lake City, Utah.

Average breakeven prices to drill a new well in the U.S. range from $47 to $55 per barrel depending on the region, according to a Wednesday survey from the Federal Reserve Bank of Dallas.

Brent prices have risen in seven out of the last nine months and have increased by more than 4 percent so far this year. Prices have also had three consecutive quarters of gains, the longest stretch since late 2010 and early 2011, after production curbs led by the Organization of the Petroleum Exporting Countries since last year.

Wednesday’s price falls came despite Saudi Arabia saying it was working with Russia on a long-term pact that could extend controls over world crude supplies by major exporters for many years.

Saudi Crown Prince Mohammed bin Salman told Reuters on Tuesday that Riyadh and Moscow were considering greatly extending the short-term alliance on oil curbs that began in January 2017 after a crash in crude prices, with a partnership to manage supplies potentially growing “to a 10-to-20-year agreement.”

Stocks end modestly lower after Fed hikes rates; energy up

U.S. stocks ended slightly lower on Wednesday, with major indexes giving up gains in choppy trade after the Federal Reserve raised U.S. interest rates, while a strong gain in the energy space helped limit losses.

The Fed raised interest rates and forecast at least two more hikes for 2018, signaling growing confidence that U.S. tax cuts and government spending will boost the economy and inflation and lead to more aggressive future tightening.

The hike was widely expected, and new Fed Chairman Jerome Powell said in a news conference after the rate-hike announcement that the U.S. central bank was trying to take the “middle ground” in raising rates.

“That’s a Fed that really feels good about the economy, not only this year but into next year,” said Jim Paulsen, Chief Investment Strategist at The Leuthold Group in Minneapolis.

“The initial response by equities was to go up because of the confidence the Fed seems to have in the economy. But with bond yields going up in anticipation of more hikes ..., that kind of scared the stock market again.”

Financials .SPSY, which benefit from a higher rate environment, briefly extended gains in the wake of the announcement but lost ground to close down 0.03 percent. Names sensitive to higher rates such as utilities .SPLRCU, down 0.39 percent, and real estate .SPLRCR, off 0.93 percent, were under pressure.

Stocks were choppy following the Fed announcement, as yields on the 10-year U.S. Treasury note US10YT=RR moved closer to 3 percent, touching a one month high of 2.936 percent.

Stocks have struggled this year while bond yield have moved higher.

Energy .SPNY jumped 2.63 percent and helped lift equities for a second straight session. Crude oil prices hit a six-week high after a surprise decline in U.S. inventories and as concern persisted over possible disruption to Middle East supply.

Markets participants are still trying to decipher the number of rate hikes this year - whether the Fed will stay at three increases as previously forecast by policy makers, or whether a fourth hike is possible.

The Dow Jones Industrial Average .DJI fell 44.96 points, or 0.18 percent, to end at 24,682.31, the S&P 500 .SPX lost 5.01 points, or 0.18 percent, to 2,711.93 and the Nasdaq Composite .IXIC dropped 19.02 points, or 0.26 percent, to 7,345.29.

Facebook shares gained 0.74 percent to stem its recent sell-off over the past two days, which cost the social media company about $50 billion in market value after reports of data misuse that raised broader questions about consumer privacy and the need for tougher regulation.

The company chief executive, Mark Zuckerberg, said Facebook “made mistakes” in a statement.

General Mills (GIS.N) slumped 8.85 percent after the company cut its full-year profit forecast due to higher freight and commodity costs.

That weighed on other food companies, with Kellogg (K.N) off 3.98 percent, JM Smucker (SJM.N) down 4.20 percent and ConAgra (CAG.N) off 2.94 percent.

Southwest Airlines (LUV.N) fell 4.79 percent after the carrier cut its forecast for a key revenue metric. Other airlines also fell, with the NYSE Arca Airline index .XAL down 1.09 percent.

Advancing issues outnumbered declining ones on the NYSE by a 1.35-to-1 ratio; on Nasdaq, a 1.49-to-1 ratio favored advancers.

Volume on U.S. exchanges was 6.72 billion shares, compared to the 7.16 billion average over the last 20 trading days.

U.S. to overtake Russia as top oil producer by 2019 at latest: IEA

The United States will overtake Russia as the world’s biggest oil producer by 2019 at the latest, the International Energy Agency (IEA) said on Tuesday, as the country’s shale oil boom continues to upend global markets.

IEA Executive Director Fatih Birol said at an event in Tokyo the United States would overtake Russia as the biggest crude oil producer “definitely next year”, if not this year.

“U.S. shale growth is very strong, the pace is very strong ... The United States will become the No.1 oil producer sometime very soon,” he told Reuters separately.

U.S. crude oil output C-OUT-T-EIA rose above 10 million barrels per day (bpd) late last year for the first time since the 1970s, overtaking top oil exporter Saudi Arabia PRODN-SA.

The U.S. Energy Information Administration said early this month that U.S. output would exceed 11 million bpd by late 2018. That would take it past top producer Russia, which pumps just below that mark C-RU-OUT.

Birol said he did not see U.S. oil production peaking before 2020, and that he did not expect a decline in the next four to five years.

The soaring U.S. production is upending global oil markets, coming at a time when other major producers - including Russia and members of the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) - have been withholding output to prop up prices LCOc1.

U.S. oil is also increasingly being exported, including to the world’s biggest and fastest growing markets in Asia, eating away at OPEC and Russian market share.

Meanwhile, U.S. net imports of crude oil USOICI=ECI fell last week by 1.6 million bpd to 4.98 million bpd, the lowest level since the EIA started recording the data in 2001, reflecting further erosion in a market OPEC has been relying on for decades.

Birol said production growth was not just strong in the United States.

“Canada, especially the oil sands, and Brazilian offshore projects. These are the two major (non-U.S.) drivers,” he said.

On the demand side, Birol said the IEA expected growth of around 1.4 million bpd in 2018.

U.S. energy drilling boom could mean $6 billion in federal well cleanups

Cleaning up the tens of thousands oil and gas wells on U.S. federal land after they stop producing could cost over $6 billion, and taxpayers may need to pitch in, according to an analysis of state and federal data commissioned by a conservation watchdog group.

The study released on Monday reflects one of the downsides to a years-long drilling boom that has made the United States a top world oil and gas producer.

The analysis by consultancy ECONorthwest on behalf of the Center for Western Priorities, estimates the potential reclamation costs for the 94,096 oil and gas wells now producing on federal lands at $6.1 billion.

The study pointed out the figure is likely several times higher than the amount the government has collected from oil and gas companies for the purposes of well reclamation - and taxpayers could be liable for some of the difference.

The Interior Department requires oil and gas companies to post reclamation bonds of $10,000 per well when they drill on federal land, to ensure that wells are cleaned up once they are retired or if a company goes bankrupt.

The report estimated, however, that the average cost of a well reclamation is now $65,200, with deeper wells that are becoming more common due to improved drilling technology costing around $100,000 to clean up.

Typically, if a company does not reclaim a well site, its bond is forfeited. If the bond is not enough to cover the cleanup, the government pays the difference.

“The current system leaves taxpayers holding the bag while oil and gas companies can walk away from their reclamation responsibilities,” said Jennifer Rokala, executive director at the Center for Western Priorities.

A spokeswoman for the Interior Department, Heather Swift, did not respond to requests for comment.

The Interior Department has not adjusted the price of reclamation bonds to keep up with inflation since the 1960s, exacerbating the disparity. If reclamation bonds had kept up with inflation, they would be roughly $64,000 in today’s dollars, according to ECONorthwest’s study.

The Interior Department has not released recent figures for the amount of money it has collected in reclamation bonds to cover existing wells. The Government Accountability Office, however, released a tally in 2010 showing reclamation bonds totaling $162 million.

The Inspector General of the Interior Department issued a report last month pointing out the financial risk to taxpayers from poor management of idle wells. It identified, among other things, a Bureau of Land Management field office that held $150,000 in bonds meant to cover 97 idle wells that together would cost $1.5 million to reclaim.

“Improperly managed idle wells can cost taxpayers millions of dollars,” according to the report.

Interior’s Royalty Policy Committee, which advises Secretary Ryan Zinke on management of the federal drilling program, will convene on Wednesday for its second meeting. Reclamation bonding is not on the agenda.

US will be a net energy exporter by 2022, four years sooner than expected, Energy Department says

The United States is on pace to export more energy products than it imports by 2022 as oil and natural gas production from the nation's shale fields keep booming and domestic energy demand remains fairly tepid, according the Department of Energy's statistics arm.

The country will achieve the feat as it expands natural gas exports beyond its traditional North American markets, shipments of crude oil increase and outward flows of refined products such as gasoline remain robust, the Energy Information Administration said in its Annual Energy Outlook.

The nation's anemic appetite for energy will also play a role in the United States becoming a net exporter. U.S. energy consumption is forecast to grow by only 0.4 percent through 2050, compared with expectations for economic growth of 2 percent.

If the forecast bears out, 2022 will mark the first year the U.S. energy exports surpassed imports since 1953.

"The United States energy system continues to undergo an incredible transformation," EIA Administrator Linda Capuano said in a statement. "This is most obvious when one considers that the [Annual Energy Outlook] shows the United States becoming a net exporter of energy during the projection period in the Reference case and in most of the sensitivity cases as well — a very different set of expectations than we imagined even five or ten years ago."

In fact, just last year, the EIA forecast the United States would not achieve net exporter status until 2026.

As a net exporter, the United States would still import oil, natural gas and other energy products. Many U.S. refineries are configured to process heavier grades of crude oil, and international flows fluctuate based on the relative cost of energy products from different parts of the world.

Last year, U.S. crude started trading at a big discount to international benchmark Brent crude after Hurricane Harvey shut down a quarter of American refining capacity, shrinking demand for crude oil. That discount makes U.S. crude more attractive to overseas refiners and helped push American exports to an all-time high above 2 million barrels a day last fall.

U.S. exports have been fueled by a boom in natural gas and oil production from advanced technology like hydraulic fracturing — the process of pumping water, sand and chemicals underground to fracture shale rocks and allow hydrocarbons to flow.

EIA projects U.S. crude and liquids output will keep growing through 2042, while natural gas production will remain on an upward trajectory through 2050.

Shipments of natural gas cooled to liquid form, known as LNG, are expected to dominate the U.S. export flows. Historically, gas piped to Canada and Mexico has accounted for the bulk of exports.

The EIA expects the United States to remain a net exporter of coal through 2050. However, it warns that shipments won't increase much because competing exporters are closer to the major markets for coal.

Within the United States, coal-fired power generation and coal production is projected to keep falling through 2022 as plants continue to retire, under pressure from natural gas-fired generation. EIA says virtually all new U.S. power generation will come from natural gas-fired plants and renewable sources such as wind and solar farms after 2022.

Energy stocks have room to build on solid start

Energy stocks have got off to a strong start this year and look poised to run further, fueled in part by a rebound in oil prices, climbing U.S. production and investors looking to take advantage of shares that could be a bargain after a disappointing 2017.

The S&P 500 energy index fell 3.8 percent in 2017, one of only two of its 11 major sectors to close out the year in negative territory, even as the overall S&P 500 rallied nearly 20 percent.

Those declines came despite a friendlier energy policy by the administration of U.S. President Donald Trump, while investors remained unconvinced a rise of more than 12 percent in WTI crude oil to the $60 a barrel by the end of the year mark would hold.

But a combination of factors, including global economic growth, continued weakness in the dollar, the ability of OPEC to keep production curbs in place and restraint on the part of U.S. shale producers has helped lift WTI over the $65 mark and convince investors the higher prices are now sustainable.

Energy stocks climbed 3.8 percent in January before stumbling nearly 6 percent this week as part of a broad market selloff.

The higher prices have not only boosted the attractiveness of energy stocks, but have bolstered the prospects for a rebound in shale production. Output for U.S. oil is poised to climb above 10 million barrels a day, which would top a record set in 1970 and cement the status of the United States as the No. 2 producer in the world.

With the energy sector in a more favorable light, investors are looking to capitalize on stocks that remain cheap despite a gain of more than 4 percent for the year.

“We are feeling good about the overall sector, we are feeling good about the space,” said Lisa Shalett, head of wealth management investment resources and head of investment & portfolio strategies at Morgan Stanley Wealth Management in New York.

“It is supported both in terms of the fundamentals, the fundamentals having more staying power and that staying power translating into better earnings growth.”

The relative performance of the S&P energy index has generally tracked oil prices, but a gap emerged in 2017 as crude prices recovered but shares in energy companies lagged, indicating they are primed to catch up.

While the forward price to earnings ratio (PE) of the energy index at nearly 24 is well above the 18.6 for the S&P 500, that number is set to decrease as the sector has the second highest percentage of upward estimate revisions of the major S&P groups through Thursday morning, according to Thomson Reuters data.

In addition, the relative price-to-book ratio of the sector is near a 10-year low at 0.6, suggesting it is undervalued.

Names such as Chesapeake Energy, with a forward PE under 5, and Cimarex Energy, at a 15.6 forward PE, are among the cheapest in the sector.

Also supporting oil prices has been the continued weakness in the dollar, which has helped demand. The greenback in January suffered its worst monthly performance against a basket of major currencies, down 3.25 percent, since March 2016. Demand for crude is sapped by a stronger dollar, which is priced in the currency.

“There are several things going for it, it was unloved, underowned and it already has been recovering fundamentally for a while,” said Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis.

“Now you have a dollar break to the downside which is pushing crude to three-year highs and probably going to push crude over $70 on WTI.”

Fund flows show investors have begun to take notice, with S&P oil and gas exploration and production industry seeing a 4.3 percent increase in inflows over the prior week, according to Credit Suisse data.

There could be some speed bumps for the sector, however. Shale players and OPEC could lose their production discipline and a strengthening U.S. economy could cause the dollar to strengthen again and dampen oil prices. Crude has dipped 0.6 percent this week and is on track for its second weekly decline in three.

“The stock market is bidding up some of these names beyond where they really ought to be,” said Stewart Glickman, energy analyst at CFRA in New York.

“Is earnings power going to improve - sure. It is moving in the right direction but some of what has happened so far has been currency driven and momentum driven and it is not going to persist.”

Another headwind could be rising bond yields denting the attractiveness of the sector for investors who look to dividend payers.

“Sometimes people buy these energy stocks as a yield play because they tend to pay nice dividends,” said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago.

“If the rates continue higher I wonder if crude will have to break above $70 before we see the next surge in energy stocks.”

Wall St. rises with oil prices, earnings optimism

Wall Street closed at record highs on Thursday as rising oil prices lifted energy stocks and investors bet on a strong U.S. corporate earnings season.

The S&P energy sector .SPNY closed up 2 percent as Brent crude LCOc1 went above $70 a barrel for the first time since December 2014, boosted by a surprise drop in U.S. production and lower crude inventories.

The consumer discretionary sector .SPLRCD saw strong gains in media and retail stocks, while the industrials index .SPLRCI was helped by airlines after news from No. 2 U.S. carrier Delta Air Lines (DAL.N).

“The unifying factor of today’s move and this whole week is a heightened confidence in the pace of economic activity. That helps explain the demand picture, which has oil up at $70,” said Scott Clemons, chief investment strategist at Brown Brothers Harriman in New York.

The Dow Jones Industrial Average .DJI rose 205.6 points, or 0.81 percent, to 25,574.73, the S&P 500 .SPX gained 19.33 points, or 0.70 percent, to 2,767.56 and the Nasdaq Composite .IXIC added 58.21 points, or 0.81 percent, to 7,211.78.

Wall Street had dropped on Wednesday, the first daily decline for S&P and Nasdaq in 2018, after a report China would slow U.S. government bond purchases and a report that U.S. President Donald Trump would end a key trade agreement.

The major indexes pared gains briefly in late afternoon trading on Thursday after New York Fed President William Dudley said tax cuts could lead to economic overheating. He predicted above-trend GDP growth with rising inflation in 2018.

“Dudley is touching on something that investors should fear,” said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago. “The only threat to the stock market right now is high interest rates. If rates are higher, the present value of equities are too high.”

Investors are betting on bullish quarterly earnings reports from big companies and details on savings from federal tax cuts. The reporting season kicks off in earnest on Friday, with results from the big U.S. banks JPMorgan Chase & Co (JPM.N) and Wells Fargo & Co (WFC.N).

Earnings for S&P 500 companies are expected to have increased by 11.8 percent in the recently-ended quarter, with the biggest gain from the energy sector, according to Thomson Reuters I/B/E/S.

“This market feels this week like a deep breath before the onslaught of earnings reports,” Clemons said. “This is a wait-and-see mode with a healthy amount of optimism.”

Delta Air Lines (DAL.N) shares closed up 4.8 percent at $58.52 after it predicted a double benefit from the U.S. corporate tax cut - savings on its own bill and an uptick in business travel as companies to spend tax savings. It also reported an upbeat quarterly profit.

Delta helped the Dow Jones U.S. Airlines index .DJUSAR close up 4.2 percent. The Dow Jones Transport index .DJT rose 2.3 percent - its biggest one-day percentage gain since Nov. 29.

Advancing issues outnumbered declining ones on the NYSE by a 3.40-to-1 ratio; on Nasdaq, a 3.18-to-1 ratio favored advancers.

The S&P 500 posted 107 new 52-week highs and 8 new lows; the Nasdaq Composite recorded 176 new highs and 18 new lows.

On U.S. exchanges 6.74 billion shares changed hands, above the 6.39 billion average for the last 20 trading days.

U.S. fund managers expect value stocks to jump in 2018

Value stocks are getting a once-over from some U.S. growth fund managers in early 2018 as they prowl for overlooked shares they think have more upside in a market that gained nearly 20 percent last year.

Value stocks, so labeled because they typically sport lower price-to-earnings valuations, tend to be in more staid or out-of-favor industries and often lag during outsized stock rallies, which is exactly what happened in 2017.

The S&P 500 Value index .IVX - a measure of companies such as Berkshire Hathaway Inc (BRKa.N) and JP Morgan Chase & Co (JPM.N) - gained just 12.6 percent last year. That is a tortoise’s pace measured against the far more hare-like S&P 500 Growth index .IGX, which doubled that performance. It clocked a 25.4-percent rise courtesy of its heavy contingent of tech giants like Apple Inc (AAPL.O) and Microsoft Corp (MSFT.O).

As a result, even some growth funds are moving out of high-flying technology stocks and increasing their positions in stocks they see as more reasonably valued at a time when the American Association of Individual Investors survey shows the greatest exuberance for stocks since November 2014.

“There is some risk to the technology sector after the big run we’ve had. Where we see opportunities now are sectors that have attractive valuations and higher visibility into their revenue streams,” said Matthew Litfin, a co-portfolio manager of the $4.7-billion Columbia Acorn fund (ACRNX.O).

Litfin is now underweight technology and has been adding to its holdings of financial stocks, such as asset management Lazard Ltd (LAZ.N), which trades at a trailing price to earnings ratio of 15.1 versus 23.7 for the S&P 500 .SPX as a whole. Lazard shares are up 5.8 percent so far in 2018.

Thyra Zerhusen, a co-portfolio manager of the $4.2 billion Fairepoint Capital Mid Cap fund (CHTTX.O), said she has been moving into the likes of toymaker Mattel Inc (MAT.O) and General Electric Co (GE.N), whose corporate upheavals overshadow the value of their underlying assets.

GE, for instance, trades at a trailing P/E of 21.2, and its shares are down 41.7 percent over the last year as new chief executive John Flannery has announced plans to shrink the company and exit some of its sprawling business lines. Shares of Mattel, meanwhile, slid 46 percent over the last 12 months as it suspended its dividend and cited the bankruptcy of Toys “R” Us, the biggest U.S. toy retailer, as a factor in its weak sales.

“Last year was not a good environment for value, but now is a time when you can find investments that will go up substantially over the next two years,” she said.

So far so good: Mattel is up 4.3 percent since the new year rang in, and GE is up 6.1 percent. The S&P is up about 2.3 percent.

NO GUARANTEES

A good year for growth stocks does not necessarily mean that value stocks will bounce back the following year, of course.

In the 20 previous occasions that the S&P 500 jumped by more than 18 percent in one year since 1951, the index rose by an additional 10 percent or more the following year 10 times, according to Credit Suisse, with growth stocks leading the way. The other 10 times the S&P on average declined 1.7 percent the next year.

Over the first three trading days of 2018, the iShares S&P 500 Growth index ETF (IVW.P) is up 2.9 percent, while the iShares S&P 500 Value index ETF (IVE.P) is up 1.6 percent.

Yet Matthew Watson, a portfolio manager at James Advantage funds, said that his firm has been bracing for a significant correction in the so-called FAANG group of large tech stocks, such as Amazon.com Inc (AMZN.O) and Google-parent Alphabet Inc (GOOGL.O) that jumped by 30 percent or more in 2017 and pulled the broad index higher.

Instead, the firm has been adding to positions in out-of-favor energy stocks such as Diamond Offshore Drilling Inc (DO.N) and retailers such as Macy’s Inc (M.N) that have under-appreciated assets, he said.

Macy‘s, for instance, is trading barely above the value of its underlying real estate portfolio, Watson said, while Diamond Offshore trades at 70 percent of its book value, a measure of the value of the assets on a company’s balance sheet. Macy’s is down 3.3 percent in the first week of 2018, while Diamond Offshore is up 2.1 percent.

“There may be positive momentum in the stock market right now, but that is only going to make it more expensive,” Watson said. “We think that the only choice you have now to find opportunities that will pay off in the long-run is to look for value.”

US on the cusp of enjoying 'energy superpower' status, analyst says

The U.S. is well-placed to join the likes of Saudi Arabia and Russia as one of the world's leading energy powerhouses, an analyst said Thursday.

"There is a big shift in market structure taking place and I think, so far, it really hasn't got the attention it deserves. The U.S. is emerging as, not only a military and economic superpower, but as an energy superpower," Martin Fraenkel, president at S&P Global Platts, told CNBC.

"We are expecting that by 2020, the U.S. is going to be one of the top 10 oil exporters in the world," he added.

'Big shift in the dynamics of energy markets'

In recent years, America's unprecedented oil and gas boom has been driven by one factor above all others — and that's shale. The so-called shale revolution could help to alleviate Washington's reliance on foreign oil, including from turbulent Middle Eastern states, while also helping to export to more countries around the world.

In November, the International Energy Agency (IEA) projected a dramatic increase in shale production could transform the U.S. into the world's largest exporter of liquefied natural gas by the mid-2020s.

The same forecast also predicted that the U.S. would likely notch another milestone a couple of years later. The Paris-based organization said that by the late-2020s, the U.S. would begin to ship more oil to foreign markets than it imports.

"This is a big, big shift in the dynamics of energy markets and, in my view, will be a shift in geopolitical markets as well," Fraenkel said.

The price of oil collapsed from almost $120 a barrel in June 2014 due to weak demand, a strong dollar and booming U.S. shale production. OPEC's reluctance to cut output was also seen as a key reason behind the fall. But, the oil cartel soon moved to curb production — along with other oil producing nations — in late 2016.

US vs. OPEC war is 'far from over'

A key step in clearing a global supply overhang has been OPEC and Russia scaling back production. And, in late November, the 14-member cartel and 10 other allied oil producers agreed to extend output cuts through to the end of 2018.

While OPEC-led production cuts have helped to stabilize oil prices, the U.S. has seized on the opportunity to rapidly increase shale production.

"As far as the oil supply and demand balance is concerned, last year was characterized by the battle between OPEC and U.S. shale producers. The annual price gains imply that OPEC is winning… but the war is far from over," Tamas Varga, analyst at PVM Oil Associates, said in a note Thursday.

Brent crude traded at around $67.82 a barrel on Thursday morning, down 0.03 percent, while U.S. crude was seen at $61.82, up 0.3 percent.

US stocks open higher, boosted by energy stocks

U.S. stocks edged higher Thursday, as major indexes gained momentum going into the last trading days of the year.

The Dow industrials added 43 points, or 0.2%, to 24817 in recent trading, while the S&P 500 gained less than 0.1%. The Nasdaq Composite rose 0.1% after wobbling earlier in the session. All three indexes are on track for a second consecutive day of gains.

Stocks had been struggling this week amid a tepid pace of trading around the Christmas and New Year’s Day holidays. Still, analysts and some investors say the pause hasn’t damped their outlook for stocks in 2018, especially when many have used the Republicans’ sweeping tax overhaul to boost their expectations.

“There’s a tremendous amount of optimism for 2018,” said Steven Wagner, chief executive of Omnia Family Wealth, a wealth-management firm based in Aventura, Fla. “It’s all going to come down to earnings and what someone’s willing to pay for that stream of income.”

Earnings for companies in the S&P 500 are expected to grow roughly 12% next year, which would be the index’s best growth rate since 2011, according to FactSet.

On Thursday, shares of technology firms in the S&P 500 were up 0.2% in recent trading, as those companies rose a second day to pare losses suffered earlier in the week.

Facebook shares were up 0.6%, while chip maker Nvidia added 0.8%.Apple rose 0.5%, cutting its weekly decline to 2% since concerns were raised over the pace of sales of its iPhone X.

Several energy companies were also among the biggest gainers in the S&P 500, including Range Resources , up 2.9%, and natural gas producer EQT, which added 1%. Shares of energy companies have been benefiting from a recent boost in oil prices.

Financial stocks gained as the yield on the benchmark 10-year U.S. Treasury bill edged up to 2.427%, according to Tradeweb, from 2.412% Wednesday after their biggest daily decline since September. Yields move inversely to prices.

Meanwhile, markets in Europe and Japan were held back by a drop in the dollar.

The Stoxx Europe 600 was down 0.3%, as the euro rose 0.4% against the dollar to $1.1943—around its highest level since November. The index of blue-chip eurozone companies generates roughly 17% of its revenues from the U.S., according to FactSet, and those revenues are worth less when translated back if the dollar is weaker.

The broader WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, was off 0.4% Thursday after falling for seven of the past eight sessions to around a two-month low.

“In the near term, this is probably about less liquidity in the market,” said Michael Herzum, head of multiasset strategy at Union Investment.

“But we think the dollar will continue to weaken in 2018,” he said, noting market participants may be underestimating the chance of a pickup in inflation and resulting monetary policy changes in Europe and Japan next year.

Elsewhere in Asia, Japan’s Nikkei Stock Average fell 0.6% as the yen rose sharply against the dollar and shares of financials fell.

Hong Kong’s Hang Seng rose 0.9%, while South Korea’s Kospi added 1.3%, helped by a 3.2% jump in index giant Samsung Electronics.

Department of Energy Announces $12 Million to Advance Early-Stage Solar Research

Today, the U.S. Department of Energy (DOE) announced $12 million in new funding for eight projects to advance predictive modeling capabilities for solar generation. These models will lead to more accurate forecasts of solar generation levels, enabling utilities to better manage the variability and uncertainty of solar power and improve grid reliability. 

“These projects will address a critical gap in our research, which is knowing precisely how much solar electricity to expect at any given hour on any given day,” said U.S. Secretary of Energy Rick Perry. “These tools are becoming more important as the solar industry continues to grow, and will work to ensure that solar contributes to the reliability, affordability, and resilience of our nation’s electric grid.”

Today’s funding will advance solar forecasting technologies in a coordinated way with partnerships between national labs, universities, and industry. Four projects are aimed at making significant advances in predicting solar generation. Another project at the University of Arizona will build a testing framework to allow industry and academia to evaluate and compare the performance of advanced models according to a transparent set of rules and metrics. 

Finally, three projects will study the integration of advanced forecasting technologies with grid planning and operations systems in partnership with the California Independent System Operator, the Midcontinent Independent System Operator, and the Electric Reliability Council of Texas. This research will validate whether or not these technologies can be efficiently integrated into energy management systems and enhance grid operation efficiency, while working to identify any future research needs. 

The total DOE investment will spur an additional $2.6 million of private sector funding through cost share requirements, yielding a total public and private investment of over $14.6 million. View the full list of awardees in the Solar Forecasting 2 funding opportunity HERE.

The Department of Energy Solar Energy Technologies Office (SETO) supports early-stage research and development to improve the reliability and performance of solar technologies.