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Gasoline Futures Rise Slightly Following Earlier Spike as Pipeline Set to Be Restored by Week's End

Tripplaar Kristoffer | SIPA | AP

Futures for fuel prices moved slightly higher, but well off their highs earlier in the session as the owner of the pipeline taken down by a cyberattack said it is beginning to bring services back online through a phased approach.

Futures hit their highest level in nearly three years at one point during overnight trading as traders assessed the impact on the largest pipeline carrying fuel from the Gulf Coast to the Northeast.

The owner, Colonial Pipeline, said on Monday midday New York time that it was using a phased approach to restore the pipeline. The company added its "plan is based on a number of factors with safety and compliance driving our operational decisions, and the goal of substantially restoring operational service by the end of the week."

Gasoline futures ended the day 0.31% higher at $2.1334 per gallon. At one point in the overnight session, gasoline futures jumped as high as $2.217, levels not seen since May 2018. The contract also spent some of Monday's session in the red.

Colonial halted all pipeline operations on Friday night as a proactive measure following the ransomware cyberattack. A criminal group known as DarkSide was responsible for the attack, the FBI confirmed.

On Monday, Cybereason provided CNBC with a new statement from DarkSide's website that appears to address the Colonial Pipeline shutdown. DarkSide said it's an apolitical organization and only wants to make money without causing problems for society.

While tank farms typically have a few days of stored fuel supply, a prolonged outage could lead to a spike in fuel prices.

"The anxiety around the situation is easing, especially if the cyber attackers are true to their word and are not seeking to strangle gasoline supplies to much of the country," said John Kilduff, partner at Again Capital. "To the extent this looks to resolve rapidly, the scare premium will dissolve," he added.

In an attempt to maintain fuel supplies along the Eastern Seaboard, the U.S. declared a state of emergency in 17 states and the District of Columbia on Sunday evening.

Colonial Pipelines systems map
Source: Colonial Pipelines
Colonial Pipelines systems map

"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 said in a statement.

Heating oil futures rose 0.3% to $2.017.

West Texas Intermediate crude futures, the U.S. oil benchmark, settled 2 cents higher at $64.92 per barrel. International benchmark Brent crude advanced 4 cents to $68.32 per barrel. Natural gas futures declined 0.9% to $2.93 per million British thermal units.

"I think it's just a duration question," said Robert Thummel, managing director at TortoiseEcofin. "If it's resolved within a couple of days you get back to normal, and prices normalize and trend back to correlating more with what crude oil prices do."

The pipeline is a critical part of U.S. petroleum infrastructure, transporting around 2.5 million barrels per day of gasoline, diesel fuel, heating oil and jet fuel. The pipeline encompasses more than 5,500 miles and carries nearly half of the East Coast's fuel supply. The system also provides fuel for airports, including in Atlanta and Baltimore.

"Without this, there's no transportation in the region, so it's critical the pipeline return to service as soon as possible," said Patrick De Haan, head of petroleum analysis at GasBuddy. "The impacts will ramp up potentially exponentially after around day 5 or so," he added.

President Joe Biden was briefed on the pipeline closure Saturday morning, and the Department of Homeland Security's Cybersecurity and Infrastructure Security Agency is coordinating with Colonial Pipeline.

U.S. Commerce Secretary Gina Raimondo said Sunday that it's an "all hands on deck effort right now."

"We're working closely with the company, state and local officials to make sure that they get back up to normal operations as quickly as possible and there aren't disruptions to supply," she told CBS' "Face the Nation."

The pipeline outage comes as Americans are beginning to travel again as restrictions are lifted and the Covid vaccination rollout accelerates. On Friday, the TSA screened more than 1.7 million passengers, the highest in more than a year.

"The Colonial outage comes at a critical juncture for the recovering U.S. economy: the start of the summer driving season," noted ClearView Energy Partners. "A sustained disruption that leads to a significant pump price spike could increase prospects of domestic policy interventions," the firm added.

The national average for a gallon of gas stood at $2.962 on Sunday, up 60% from a year ago, according to AAA.

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- CNBC's Emma Newburger contributed reporting.

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