Gasoline futures are ticking higher Monday following a cyberextortion attempt on a vital U.S. pipeline that carries fuel from the Gulf Coast to the Northeast.
The Colonial Pipeline transports gasoline and other fuel through 10 states between Texas and New Jersey. It delivers roughly 45% of fuel consumed on the East Coast, according to the company.
Colonial Pipeline said Saturday that it had been hit by a ransomware attack and had halted all pipeline operations to deal with the threat. Two people close to the investigation said that the shutdown had been carried out by a criminal gang known as DarkSide that cultivates a Robin Hood image of stealing from corporations and giving a cut to charity.
The US Department of Transportation on Sunday said it has issued an emergency “hours of service” exemption in response to the shutdown that will allow truck drivers transporting gasoline, diesel and jet fuel to work longer days.
Futures for crude and fuel, prices that traders pay for contracts for delivery at some point in the future, typically begin to rise each year as the driving season approaches. The price you pay at the gas pump tends to follow.
In an update on Sunday, the company said that its four mainlines remain offline, but some smaller lines between terminals and delivery points are now operational. The pipeline’s owners include Royal Dutch Shell.
“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,” it added in a statement.
The shutdown could extend a recent jump in gasoline prices — especially if the outage persists — piling on the pain for drivers as the seasonal peak in demand approaches.
“The number of days that the line is out of service is critical,” Tom Kloza, global head of energy analysis for the Oil Price Information Service, which tracks gas prices at 140,000 US stations, told CNN Business.
“The greatest concern is in coastal states from Georgia north to the Delmarva Peninsula,” Kloza said, referring to the peninsula that includes parts of Delaware, Maryland, and Virginia. Supply to the northeast can readily be supplemented with foreign imports of gasoline, he said, but several other states don’t have that advantage. “Tennessee is also a primary supply concern, as it often runs out of gasoline during normal circumstances,” he said.
The average U.S. price of regular-grade gasoline has jumped 6 cents over the past two weeks, to $3.02 per gallon, which is $1.05 higher than it was a year ago. Those year ago numbers are skewed somewhat because the nation was going into lockdown due to the pandemic.
The attack on the Colonial Pipeline could exacerbate that upward pressure on prices if it is unresolved for a period of time.
Futures jumped 1.5% Monday, the largest movement in about a week, with the potential for disruptions in fuel delivery still unknown.
Colonial is in the process of restarting portions of its network. It said Sunday that its main pipeline remained offline, but that some smaller lines were operational.
For the moment, seesawing prices may be felt mostly within the energy industry as suppliers adjust to potential shifts in the flow of gasoline.
More fuel may be sourced from East Cost refiners, J.P. Morgan said Monday, and an extended outage along the Colonial Pipeline would force suppliers to seek fuel from the Midwest, rather than the Gulf.
In response to the attack, the Biden administration loosened regulations for the transport of petroleum products on highways as part of an “all-hands-on-deck” effort to avoid disruptions in the fuel supply.