The tally is in and it was a very bad evening for the Democratic party. Senate races in Iowa, North Carolina, Georgia and a host of other States went red. Alaska is still to be determined (likely Republican) and Louisiana is slated for a run off. All told, it looks likely the Republicans have garnered a solid majority in the Senate (up to 53-54 seats) and the biggest majority in the House (over 246 seats and counting) since Truman 60 years ago. This certainly seems to have surpassed the nightmare scenario envisioned by the Dems. While the markets may enjoy a honeymoon rally, it always fades. Gridlock is still assured as bills submitted to President Obama can be vetoed.
But we see some potential positives for our strategic investments in the oil sector. Two things jump out at me. First, the Keystone XL seems likely to be approved. While a veto is possible, the hit suffered by the Democrats may have been severe enough to push this through. It could get tied to some additional legislation, but I’d say the odds are good for approval.
Ironically, the oil industry has found many ways around this through rail and barge and pipeline reversals, but the Gulf Coast refining complex is desperately in need of heavy sour crude (not the light crude provided by the “shale” guys). Venezuela and Mexico have been the biggest suppliers of this product and neither of them look sustainable. Was it any wonder that Warren Buffett went long Suncor (the largest Canadian oilsands producer) some time ago? So we would expect the Canadian heavy oil producers could get a nice boost. As we have noted in our prior writings, we are favorable to the Canadian exploration and production companies and have made strategic investments in the space.
Also likely is the elimination or easing of the ban prohibiting the exporting of crude oil. The delusion that is being suffered by both parties is that of “energy independence.” At the risk of repeating myself for the 700th time, we are producing around 9 million barrels of oil per day.