Oil in focus as cyberattack knocks out U.S. pipeline

Yahoo Finance’s Julie Hyman, Myles Udland, Brian Sozzi, and Jared Blikre discuss the Colonial Pipeline outage and what it means for oil and gas prices.

Video transcript

JULIE HYMAN: First let's talk about that cyber attack on the Colonial Pipeline, which as I mentioned, is the largest in the US. It was subject of a cyber attack. There's speculation here that those behind the attack are a ransomware group called DarkSide that might be asking for money in exchange to-- for them now ceasing this cyber attack.

Colonial Pipeline, it sounds like, has not necessarily had the cyber attack on the systems that directly operate the pipeline. But as a safeguard, they have shut down the entire system. And so now there is an effort underway on the part of the administration and the industry to try to figure out how to continue fuel flowing to the US. But in the meantime, we are seeing the effect on prices.

Jared Blikre has been tracking that effect. And already, obviously, Jared, we've been seeing a lot of action in commodities lately. And then this happens. So talk us through the energy complex and how this is being felt.

JARED BLIKRE: Sure thing. We did see an initial price spike. And futures opened last night at about 5:00 PM Eastern-- 6:00 PM Eastern, excuse me. And if you look at the price action, especially in gasoline futures, a lot of times these kinds of events work themselves out over a few days or weeks. This is highly reminiscent, at least to me, about the Saudi Aramco attacks that we had a few years ago. Those were terrorist attacks, and they physically attacked the facilities. So we're talking about missiles.

And the pipeline and the facilities and the ability to churn out more crude oil and refine it-- those were rebuilt rather quickly. People thought it would take months, maybe even a year. And it only took a few weeks. So this is very troubling, and we're going to have to keep an eye on this. Any further attacks would certainly be jarring. But I think this is probably going to be one of those one-off events that raises awareness-- fortunately, because this is an issue. You know, cyber attacks on our infrastructure, especially in the state that it is, is very concerning.

JULIE HYMAN: Yeah, most definitely. And I've been reading up this morning on what exactly-- what the importance of this pipeline is. And maybe-- even if it's a one-off event, maybe raises the flag for other firms to try to increase their cybersecurity. So basically, fuel coming from the Gulf up to the Northeast-- it goes between three and five miles an hour. So not super speedy, but it gets there.

So some of this supply might be substituted with oil tankers, gasoline tankers bringing fuel to the United States. That's a much slower proposition, though. It takes 10 to 14 days, according to Clearview Energy Partners. You have, of course, federal stockpiles you could use to-- to subsidize what we're seeing, the shortfall here.

But again, all of that takes time. It's more friction within the system. And in the meantime, you could see those gasoline prices continue to work their way higher. Brian?

BRIAN SOZZI: Yeah, I'm just watching too. Julie, you mentioned the cyber angle here, FireEye, which has helped detect this problem here in the pipeline. Shares are up about 5% premarket. Also seeing a bid in CrowdStrike, another cybersecurity play. And even Cisco-- you know, we think of a Cisco as a primarily infrastructure play in tech and 5G. But they're also in the cybersecurity business. Seeing that stock pop up about 1%, a little under 1% premarket as well.

MYLES UDLAND: Yeah. The thing I'll just say about this that you never like to see in these kinds of situations are quotes and commentary to the effect of, well, we certainly hope this doesn't last more than two more days. Or, no one was really thinking about this that much, and now it's a major issue over the weekend.

Now granted, we kind of see this play out over time. The weekend, nothing happens in markets obviously, right? And then oil-related stories-- I mean, I can remember days in 2017. It's like, oh, Iran this, you know, Gulf tensions that. Of course, nothing really amounts to that. So you sort of-- as a markets reporter, you don't know which bucket to put it into. The "no one's talking about this, which means it's going to get very bad very fast," or the "just another weekend oil concerns story."

I think right now, it's unclear which bucket it will fall into. But the speed with which this went from a story that was not talked about because it had not happened yet, right? Friday we're focused on the jobs report and stocks going higher. No one even knew there had been this penetration into the pipeline system. And now sitting here Monday morning to not yet see a resolution certainly has, I guess my Spidey sense, up a little bit. The market, however-- which in general one is better off deferring to-- certainly seems to be OK with things this morning.

JULIE HYMAN: Yes, most definitely. I mean, the timing also matters, right? We're headed into the summer driving season, getting pretty close to Memorial Day weekend. So sort of there's a heightened sensitivity to this kind of stuff.

Jared, finally, I just want to point out, Colonial Pipeline is not a publicly operated company. It is controlled by Koch Industries and some other partners. What about some of the publicly traded refiners and other companies within the oil complex? Are we seeing any kind of action there?

JARED BLIKRE: Yeah. I looked at some of the majors, and especially overseas, because they're actually trading in a liquid environment there. Typically you will see energy prices when you have a spike in crude or refinery problem issue like this and you see the spike in gasoline prices. That can affect input costs in different ways. And sometimes-- if you take a look, if you remember back we had a polar vortex earlier in the year. These can have outsized effects on not only energy stocks, but also in non-intuitive ways because sometimes they're taking out capacity.

Now, in the current case, simply having higher prices-- that tends to benefit the energy companies more. But once you start getting spikes in gasoline prices, that just means that the input prices are higher. So that can actually weigh on margins.

So you have upstream operations when you're talking about the majors. That's digging the crude and pumping it out of the ground. And then you have downstream operations. That's the refining part. So the refiners maybe get squeezed a little bit. And then the majors, the integrated-- because they have both-- maybe just benefit a little bit from the rise in price. But as I said, I think this is probably a temporary one-off event, and we'll see prices calm down-- calm down in the coming days and weeks.

JULIE HYMAN: As I said, hopefully before Memorial Day weekend when everybody gets on the roads. All right, thank you, Jared. Appreciate it. We'll see you back in a little bit.