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The Colonial Pipeline hack is a ‘wake-up call’: Expert

Jim Mitchell, Refinitiv Head of Oil Research, joins Yahoo Finance Live to discuss the fallout of the Colonial Pipeline cyberattack.

Video transcript

ALEXIS CHRISTOFOROUS: Cryptocurrencies into freefall. After months of hyping Bitcoin, Musk suddenly says Tesla will stop accepting it as payment for its cars. Why the change of heart? And what does it mean for the future of crypto?

But first, to Wall Street, where stocks have climbed out of that hole they sank into yesterday, as you see there on your screen. All three major indexes staging a powerful rally. And, Kristin, it looks like those beaten-down tech stocks are leading the way higher.

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KRISTIN MYERS: Yeah, absolutely, Alexis-- what a difference a day makes. The Dow still off of that 35,000 level that we had seen just a few trading sessions ago. However, as you mentioned, all three major indices right now are in the green. Looking on a sector basis right now, there's only one sector in the red. This might surprise folks, it's actually energy-- down 1.5% right now-- just over 1.5%.

Leading, however, we have financials and utilities-- utilities up 1 and 8/10 of a percentage point. Now, you did mention the NASDAQ. Of course, right now, that sector is up about 1 and 1/10 of a percentage point. The NASDAQ right now up about 3/10 of a percentage point. The leader today, of course, is the Dow with utilities right now leading on a sector basis.

Want to take a look over at that 10-year bond yield-- we had seen it pop yesterday, what a reversal-- in the red today, down about 1 and 9/10 of a percentage point-- so just under 2% right now. It's fallen to a level of 1.66%. It was 1.68% just yesterday. And as we've been talking about energy, and, of course, with those prices surging at the pumps, you would expect, perhaps, to see crude doing well. Well, it's not-- down, about 4% right now, Alexis.

ALEXIS CHRISTOFOROUS: All right. Thanks a lot, Kristin. I want to get to our top story of the day, and that is the Colonial Pipeline. We heard from President Biden just moments ago saying that fuel is flowing once again at that critical pipeline along the East Coast. He is asking motorists not to panic. We continue to see a run on gas stations up and down the coast here. And he's also got a warning for gas station owners.

JOE BIDEN: And I also want to say something to the gas stations-- do not, I repeat, do not try to take advantage of consumers during this time. I'm going to work with governors of the affected states to put a stop to price gouging wherever it arises. And I'm asking our federal agencies to stand ready to provide assistance to state and local efforts to monitor and address any price gouging at the pump. Nobody should be using this situation for financial gain.

ALEXIS CHRISTOFOROUS: All right, as a couple of hours ago, nearly 3/4 of gas stations in North Carolina were out of gas, according to Gas Buddy, while more than half the stations in Virginia, Georgia, South Carolina, and Washington, DC are running dry. And analysts warn those numbers may drift higher over the next 48 hours before starting to retreat.

Also today, separately, "Bloomberg" is reporting that the Colonial Pipeline paid Russian hackers nearly $5 million in a ransom. Lots to get to here-- let's jump into it now with Jim Mitchell, he is Head of Oil Research at Refinitiv. Jim, thanks so much for joining us.

First off, you heard what President Biden had to say about the Colonial Pipeline. What do you make of what the US is trying to do in terms of getting fuel to where it needs to go in a timely manner?

JIM MITCHELL: I think the president, along with the industry, is doing absolutely everything they can to get gasoline to the affected areas. Being from Houston here, we see this frequently when we have hurricanes. The industry is pretty good at doing this. And I know that's little comfort to the people that are parked in lines waiting to get gasoline, but this is a short-term thing.

KRISTIN MYERS: How short-term do you think it's going to be, Jim?

JIM MITCHELL: I suspect everybody who wants to get gasoline is going to be able to get gasoline and as much as they want by Sunday. With that said, I suspect probably tomorrow and into Saturday, we're going to see these lines that you are displaying here will dwindle a lot.

ALEXIS CHRISTOFOROUS: What do you make of these reports coming out of "Bloomberg" that Colonial Pipeline actually negotiated with these cyber criminals and gave them $5 million? If true, I have to think this sets an absolutely horrific precedent.

JIM MITCHELL: Yes. I heard this over the weekend, and I also heard it was paid in cryptocurrency-- don't know which one. I have no way to validate that. But that's what the rumor was around the industry here in Houston. Yes, it does set a very bad precedence.

I don't know what to make of it. I fully suspect that the FBI is heavily involved with this, and I hope that kind of information doesn't make it out into the public, because then it's just going to get much, much worse.

KRISTIN MYERS: So, Jim, I think a lot of folks are asking questions about the likelihood of some of these attacks to happen again-- if there is going to be copycat attacks. I think that that $5 million ransom, of course, might only serve to inspire other hacking groups. So then going forward, how much risk do you think some of these vulnerabilities are going to be presenting to the oil markets?

JIM MITCHELL: Well, I've been in the industry for quite a while. And after 9/11, we saw a big advancement in security. But most of that security involved the physical presence around refineries, and pipelines, and other oil production facilities. It was around 2014-'15 that we started to see companies increase their cyber-security protection.

It's important to note in this situation, the criminal group did not affect the pipeline operation. This was in the corporate aspect of Colonial Pipeline. So I guess that if there is good news in this, that is the good news. That's one of the reasons they were able to get the pipeline back up and running once they made sure that everything was safe, and protected, and no restart issues.

Going forward, clearly, this is a wake-up call. I would not be surprised if Colonial does have, and prior to this had, substantial protection in place. And it's impossible to know-- maybe the hackers tried to get to the operation of the pipeline and couldn't, and then went after some of this other data. I was at one of the owners of Colonial Pipeline-- I worked for one of those companies for quite a while. And I can tell you, they have significant protection-- cyber-attack protection in their critical facilities. Is it enough? I guess there's only one way to find out.

ALEXIS CHRISTOFOROUS: And you know, Jim, I don't know if you saw, there's a former cyber-security expert who used to work for the Department of Homeland Security, Chris Krebs, who spoke to lawmakers just last week-- just days before this ransomware attack. And he actually used the word, pandemic. He said that we could reach pandemic proportions when it comes to cyber-attacks.

He pointed out a major vulnerability saying, cyber crime is rooted in what he called a digital dumpster fire of our seemingly pathological need to connect everything to the internet. Do you think that's it? Is that our weak spot-- the fact that so many things are the information superhighway, that at the end of the day is not all that secure?

JIM MITCHELL: I would definitely agree with that. But there's a reason that's being done. And the reason that's being done is for efficiency. And it's difficult to not pursue that path. So I think that we'll continue to pursue that path as an industry with much heightened digital protection. I don't really see a way around that.

KRISTIN MYERS: Curious to know, Jim, what you think-- and of course, we just heard from President Biden-- but going forward, how the US government is going to be reacting to this. A lot of folks have said that part of the vulnerabilities lie in the fact that our infrastructure, at least when it comes to oil, is so fragmented. We saw that just a couple of months ago in Texas.

So what can be done going forward, save each company trying to beef up their cybersecurity? Do you imagine that some policy changes might be coming out of this to create some kind of unified security system, at least on American infrastructure, at least as it applies to our energy markets?

JIM MITCHELL: It's hard to say. And that's a very difficult thing to legislate, because the assets are so different. The impacts are so different. The companies involved are of all different sizes and sophistications.

I think it's a very difficult thing to legislate. With that said, it is clearly in the company's interest to do this. And this event shows the cost that certainly could happen. And this could have been a lot worse than it actually was. It definitely got everybody's attention. So I don't suspect that there will be legislation on this, but there clearly will be corporate action on this.

ALEXIS CHRISTOFOROUS: Jim, before we let you go, we're seeing sort of this irrational run on gas at stations up and down the East Coast. We heard President Biden tell folks not to panic. Is there enough fuel out there right now? Should people be running, and filling up their gas tanks, and holding on to some extra?

JIM MITCHELL: No. No. And it's-- how do you stop people from irrational purchasing? We saw that here in the Houston area during the freeze in February. There's-- I don't know. I don't know how to stop it. I'm not sure anybody does.

There will be fuel in these areas in the next couple of days on an ongoing presence. Remember, we had a lot of fuel in storage coming into 2021 because of what happened in 2020. Because this area in the Southeast part of the US has been recovering so well from COVID, the economic activity has been improving, that gasoline-- more gasoline and diesel glut is gone.

And the most vulnerable area is Virginia, West Virginia, down the Atlantic coast-- Florida, Georgia. That is the most vulnerable spot in the US. But with that said, there's a lot of refinery capacity online. And once we get past this hurdle, I don't suspect that there will be any issue. Gas prices will probably stay elevated through the year. But we're not going to see a shortage of gasoline.

ALEXIS CHRISTOFOROUS: All right. Well, we like that. Jim Mitchell, Head of Oil Research at Refinitiv, thanks so much for being with us.