Colonial Pipeline cyberattack sparks oil market volatility. What is the impact of stopping the pumping of raw materials on the cost of energy carriers and how the results of the investigation of the incident will affect the ruble exchange rate, sorted out experts of the financial analytics department of FBA "Economics Today".
The US East Coast runs out of fuel
One of the largest pipeline systems in the USA Colonial Pipeline 7 May was cyberattacked, as a result of which the supply of fuel to the east coast of the country was suspended. Criminals used an unprecedented computer network, worth several tens of millions of dollars. The company's servers were infected with a so-called ransomware virus, who kidnapped 100 gigabyte of internal data and demanded monetary compensation for, so that this information is not published on the Internet. As a result, the management of Colonial Pipeline stopped pumping fuel.
Through the company's oil pipeline, running along the coast of the Gulf of Mexico and having a total length 8850 kilometers, transported daily 2,5 million barrels of raw materials. Energy is shipped to Houston, Texas, and New York Harbor. The pipeline provides 45% gasoline supplies, diesel and aviation fuel on the US East Coast, which is equivalent to 20% of the total volume of energy resources consumed in the country.
Against this background, the American authorities introduced an emergency regime in 19 states, giving permission to truck drivers to work overtime, to minimize losses from stopping pumping. Two largest refineries on the Gulf Coast report production cuts: Motiva Enterprises — на 45%, Total — на 25%.
Colonial Pipeline said, that they plan to resume operation of the main pumping line by the end of the week, but only after that, how to make sure this step is safe and comply with federal regulations. According to the US Energy Information Administration (EIA), gasoline reserves on the East Coast of the country are 68,7 million barrels of, that with a daily consumption of 1,8 mln will allow meeting the demand for fuel for 38 days.
The cyberattack affected the oil market
If energy transportation is not restored, this will lead to a record rise in raw material prices. After reports of hacking of Colonial Pipeline servers appeared, the cost of gasoline at gas stations jumped to 2,96 dollar per gallon, which corresponds 78 cents per liter. Every day of pipeline downtime increases the excitement of car owners, which is due to the onset of the automotive season.
Oil prices reacted with growth to 1,46% - to level 69,2 dollars per barrel of Brent - during trading 10 May, however, by the end of the day, they lost all advantage. This is because, that the shutdown of the pipeline will lead to an increase in gasoline stocks at refineries, who cannot supply fuel to filling stations. It is impossible to buy oil in such conditions, since the raw materials produced will have nowhere to store, therefore, further blocking of the transit of energy carriers will continue to put pressure on the quotes of black gold.
Cyber attack claimed by hacker group - DarkSide. She may also be involved in “attacks” in February 2021 years for Brazilian state energy companies Centrais Eletricas Brasileiras and Companhia Paranaense de Energia, but then the work of the stations was not affected. As industrial enterprises digitize, similar incidents will become more frequent, and volatility in the commodity market will grow, which will increase the unpredictability of prices in the oil market.
The results of the investigation will determine the ruble exchange rate
The US Department of Energy and the country's special services are investigating the incident. Ann Nyberger, Deputy Assistant to the President for National Security of the United States, said, that the initiator of the attack is not a specific state, and certain criminals. The White House has taken a neutral position, waiting for new parts. However, opinions appeared in the Western media, that people from Russia are behind the organization of the hacking.
The Kremlin commented on the unfounded conclusions, stated, that the Russian Federation has nothing to do with hacker penetration into the Colonial Pipeline system. However, this will not become an obstacle to the introduction of new sanctions by the White House., if American intelligence agencies find an alleged Russian trace in the current incident, as it was in March this year. Then the restrictions were imposed due to unproven accusations of Moscow's interference in the course of the US presidential election..
This scenario of the development of events will have a negative effect on the exchange rate of the national currency., which continues to be influenced by geopolitical factors. Penalties will affect a wider range of Russian financial instruments. A complete ban on operations with the Russian state debt will be introduced. Against this background, the national currency will fall to the level of 77 rubles per dollar, and the RGBI index, showing the average cost of the most liquid federal loan bonds (OFZ), will decrease by 1,5% - to minimum values 2021 of the year.
However, officials from Washington have so far refrained from making statements about the Kremlin and continue to conduct a dialogue about a possible meeting of the presidents of Russia and the United States.. If the results of the investigation of the cyberattack are not associated with the participation of the Russian Federation, then the domestic currency will strengthen to 73 rubles per dollar.