Imperfect Infrastructure: Colonial Pipeline Hack

Colonial Pipeline, the largest fuel pipeline system in the United States, has been ransom hacked on 7 April by a cyber criminal organisation. The pipeline stretches 5,550 miles on the eastern seaboard, supplying 45% of the fuel demand from New York to Texas has caused complications to several airports, including the Hartsfield Jackson Airport in Atlanta. This incident puts a spotlight on the vulnerability of the United States’ energy infrastructure cybersecurity. Colonial Pipeline and the White House are cooperating in order to solve the problem and focusing primarily to restore the pipeline service. After the incident, a cyber criminal group known as the DarkSide claimed responsibility for the attack on the pipeline. The group is based in Eastern Europe modelled as a “ransomware as a service” business targeting only for-profit companies in English speaking countries. Furthermore, they have declared on their website, “Our goal is to make money and not creating problems for society”, and have also stated they will donate a portion of the ransom pay to charities. As a result, the Colonial Pipeline hacking incident by DarkSide has generated concerns among the market players regarding the fuel distribution in the long term that will surely cause the fuel price to soar ahead of the summer driving season.

The impact of this CyberHack incident not only involved certain parties, but at least 17 states and the District of Columbia must be in an unfavorable position due to fuel shortage. Kidult, the founding partner of Again Capital, said that there is a booking out of Europe for the United States as it is noted that at least six tankers are booked. However, most of the fuel distribution is done by road, specifically by truck. On Sunday (5/9), the Bidden Administration made a policy to extend the amount of time truck drivers can spend behind the wheel when transporting across 17 states and the District of Columbia. In addition, the Colonial Pipeline itself assures that the fuel distribution will be carried out as soon as possible. “We are in the process of restoring service to other laterals and will bring our full system back online only when we believe it is safe to do so and in full compliance with the approval of all federal regulations,” Colonial Pipeline's representative said in a statement on the same day. Subsequently, by Sunday (5/9), heating oil futures rose 0.3% to $2,017. The United States oil benchmark, West Texas Intermediate crude futures, settled 2 cents higher at $64.92 per barrel, and the International benchmark Brent crude onward 4 cents to $68.32 per barrel. However, Natural gas futures depreciate 0.9% to $2.93 per million British thermal units. Even though the Colonial Pipeline has assured that they will distribute as soon as possible, in fact, several gas stations in the concerned region, one of which is Georgia, have experienced shortages which will necessarily lead to higher prices.

The catastrophic situation from the ransomware attack on the Colonial pipeline fosters the investors' worries. This wariness can be observed at the US market on Friday (5/7), the Dow Jones Industrial Average dropped by 35 points by the close of trading, or 0.1%, while the S&P 500 decreased 1%, and the Nasdaq Composite fell by 2.6%. In spite of how signals of shortage of oil have shown analysts measure these shortages can be overcome as the inventory of oil is still sufficient. Nevertheless, if not resolved rapidly, this could lead to a concerning situation. Adding to that, Joshua Mahony, a senior market analyst at IG Group, assured this as he stated, "The existence of plentiful gasoline inventories does limit the impact of this attack for now, although the issue could become more pressing with each day that passes without resolution," stated Joshua to Barrons on Monday (5/10). This ransomware attack caused some of the powerhouse of the stock market in the United States to decline. As this situation caused the Colonial pipeline system to be offline, there are some who benefitted from this catastrophe, such as New Jersey-based PBF Energy (PBF) who controls operations serving the Northeast. Its stock was up 4% on Monday (5/10). Offline systems could also affect the shipping part thus giving companies like Scorpio Tankers (STNG) benefits. On the financial perspective, this hacking tragedy has threatened banks and major financial markets. Incidents such as data breach, broken ATMs, or inaccessible brokerage accounts could possibly occur. In recent years, cyberattacks have wreaked havoc on banks and stock markets around the world. The great news, unlike pipelines and other ageing physical assets, banks and exchanges have some of the most powerful cyber defenses in the private sector, according to CNN security experts. In essence, although this pipeline hack tragedy holds a significant impact in terms of oil price and inventory, not to the capital market perspective, we must be aware as this incident could become a cybersecurity threat to banks and exchanges worldwide.

Sources :

Barrons

Bloomberg

CNBC

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