Daily Update: May 11, 2021

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The ransomware attack on a critical pipeline, deemed the worst to date against U.S. infrastructure, has disrupted energy flows for days and reinforced vital physical systems’ vulnerability to cyberattacks.

The extortion attempt, conducted by the criminal organization DarkSide, on May 7 shut down the Colonial Pipeline system’s 5,500-mile-long artery that transports 100 million gallons per day of natural gas and oil for much of the American South and East Coast. The U.S. Department of Transportation issued a rare emergency declaration after the cyberattack on Sunday that lifted overtime regulations for drivers transporting fuel to avert a supply squeeze, and North Carolina declared a state of emergency over the shutdown on Monday. While Colonial Pipeline aims to restore its operations by the end of the week, uncertainty prevails. The situation is shining a spotlight on cybersecurity as a key factor for long-term resiliency within environmental, social, and governance (ESG) decision-making.

"This is a wake-up call to industry, and now the pipeline sector, that these threats are real and the would-be attackers will find a way," John Cusimano, vice president of aeCyberSolutions, which conducts risk assessments for pipelines and other sectors, told S&P Global Platts. "There does seem to be a lack of investment particularly in the field sites is what we've seen. It's out of sight, out of mind … They may not recognize the issues they have out in the fields from where they sit. It can be quite eye opening to them."

Cyberattacks on energy infrastructure are becoming increasingly common. Fifty-six percent of global utilities companies recently surveyed by the energy technology firm Siemens Energy and the data-privacy research organization Ponemon Institute reported at least one attack involving loss of private information or an operational outage in the last month, with 4% reporting 10 or more such attacks, according to S&P Global Platts. Looking ahead, more than half of respondents expect a cyberattack on critical infrastructure in the next year.

"What this attack shows us is that we need to continue to be hyper-vigilant, that we need to pay more attention to industrial cyber, that we need more innovative solutions for this space that are purpose-built, and we need to do it all in the context of the energy transition," Leo Simonovich, vice president and global head of industrial cyber and digital security at Siemens Energy, told S&P Global Platts.

The incident is already affecting gasoline, diesel, and jet fuel and creating volatility across energy prices. The outage has driven U.S. Gulf Coast refining margins higher and shifted the import and export flows for refined products. Market sources said the closure has improved sentiment in European clean products as an alternative inflow during the closure.

S&P Global Platts Analytics expects the shutdown to trigger longer-lasting ripple effects on gasoline and diesel. Fuel inventories could reach five-year lows by May 14 if the pipeline remains offline for an extended period.

Inventories of gasoline and diesel on the U.S. Atlantic Gulf coast have maintained approximate seasonal averages thus far, but if "consumers collectively decide to fill up their gas tanks due to fear of a shortage, it could cause a shortage," S&P Global Platts Analytics said in a recent note. "For example, if 30 million cars went from 50% full to 90% full, that could be 4 million barrels drawn from service station tanks who would then try to refill from their suppliers. Such panic buying was a factor in the consumer gasoline shortages with the 1973 and 1979 oil crises."

Today is Tuesday, May 11, 2021 and here is today’s essential intelligence.

Uncertainty in the Global Economy

U.S. Biweekly Economic Roundup: The April Jobs Report Came Up Short

The U.S. added an estimated 266,000 jobs in April, according to the Bureau of Labor Statistics--lukewarm progress considering 9.8 million people are unemployed (and even more when factoring in all the workers who left the jobs market since February 2020).

—Read the full report from S&P Global Ratings

UK Announces List Of International Holiday Destinations Amid Expected Uptick In Jet Demand

The UK government has announced which countries English holiday-makers will be able to visit without quarantining on their return, those on the so-called green list, amid projections of steady improvement in jet fuel uptake later in the year.

—Read the full article from S&P Global Platts

Saudi Arabia's Economy Contracts In Q1 On Lower Oil Production

Saudi Arabia's GDP shrank 3.3% in the first quarter due to lower oil production from a year-earlier period, as the biggest Arab economy suffers from adherence to OPEC+ cuts.

—Read the full article from S&P Global Platts

Market Dynamics

Equal Weight Indexing During Economic Recovery

With COVID-19 ripping throughout the globe, equity markets declined rapidly as several countries closed their borders. At the same time, however, some companies flourished as people spent more time at home. Companies like Apple, Microsoft, and Google shined brightly and became larger than ever before. However, over three months into 2021, we are now seeing signs of recovery towards normalcy, with continued supportive measures by many central banks and governments, along with a growing number of people being vaccinated. So, what does that look like from a market leadership perspective as the recovery unfolds and economic activity accelerates?

—Read the full article from S&P Dow Jones Indices

The Credit Cycle

Hybrid Equity Content When A Call On LIBOR Fallback Is Likely

Retirement of LIBOR may have implications for the equity content of certain hybrid capital instruments we assess. S&P Global Ratings’ existing criteria include frameworks that can be applied to analyze a scenario such as that brought about by the retirement of LIBOR.

—Read the full report from S&P Global Ratings

Banking Sector Under Pressure

How Barclays CEO Won The Battle Vs. Activist Investor

Activist investor Edward Bramson's departure from the share register of Barclays PLC is vindication for CEO Jes Staley's determination to focus on the investment banking arm, said analysts. Sherborne Investors Management LP, Bramson's investment vehicle, announced that it had sold its entire 6% stake in the U.K. bank after three years of agitating for it to cut back its investment banking operations and to return money to shareholders.

—Read the full article from S&P Global Market Intelligence

Technolog & Media

Global Internet Outages Drop 16% In First Week Of May

Global internet outages totaled 250 in the week of May 1, down 16% week over week, ending three consecutive weeks of increases, according to data from ThousandEyes, a network-monitoring service owned by Cisco Systems Inc.

—Read the full article from S&P Global Market Intelligence

Stronger For Longer: Good Demand, Capacity Constraints, And Low Inventory To Bolster U.S. Tech Into 2022

S&P Global Ratings expects a strong macroeconomic recovery, shortages of critical components, and dwindling inventory to result in tight supply chain conditions into 2022, supporting favorable technology industry conditions even as the sector adds capacity. Customers are buying 5G smartphones at a brisk pace, which is seeding demand for wireless service. The completion of the C-Band auction in the U.S. in the first quarter sets the stage for increasing network investments in the second half. Tensions between the U.S. and China remain high and the Biden administration wants to incentivize more domestic semiconductor production to mitigate geopolitical risk. Hyperscale data center spending is rebounding with enterprise demand not far behind. Memory fundamentals are strong with good demand and supply discipline. S&P Global Ratings expect strong fundamentals for the tech industry to result in a positive bias in rating actions for U.S. tech in 2021.

—Read the full report from S&P Global Ratings

ESG in the Time of COVID-19

Listen: ESG Pressure Builds On Energy Sector As Investors, Lawmakers Raise Climate Goals

Just how realistic are the ESG goals being set each quarter by US energy producers in the face of rising pressure from investors, banks and the government to become more environmentally sustainable?

—Listen and subscribe to Capitol Crude, a podcast from S&P Global Platts

India CEO Series: From Oil To Hydrogen, IOC Says Energy Transition To Have Room For All

Indian Oil Corp. is embarking on a strategic growth path that will aim to maintain focus on its core refining and fuel marketing businesses, while making bigger inroads into petrochemicals, hydrogen and electric mobility over the next 10 years, its chairman told S&P Global Platts.

—Read the full article from S&P Global Platts

Weather Troubles In Brazil, US Likely To Keep High Corn Prices Sustained

Corn futures prices on the Chicago Board Trade, which gained nearly 50% since the beginning of 2021, are likely to maintain the upward trend in the near-term, owing to weather issues with the top two producers — Brazil and the US — and higher demand from China.

—Read the full article from S&P Global Platts

Winter Storm Bills Still Pending In Texas Legislature; Regulators Await Action

Texas lawmakers had on May 7 more than 30 bills pending, designed to address the deadly mid-February winter storm that left about 4 million customers without electricity for various periods across four days, and state regulators are awaiting lawmakers' decisions before advancing eight storm-related projects.

—Read the full article from S&P Global Platts

The Future of Energy & Commodities

Market Movers Asia, May 10-14: Iron Ore Prices On Spotlight After Hitting Record Highs

On this week's Platts Market Movers Asia with Digital Editor Barbara Lorenzo Caluag: the iron ore market sentiment is on overdrive, after prices breached $200/mt for the first time in its history.

—Read the full article from S&P Global Platts

OPEC+ Crude Oil Production Rises In April, On Surges From Iran, Russia: Platts Survey

A resurgent Iran pumped its largest volume of crude in almost two years in April, while an increasingly compliance-challenged Russia also boosted its output yet again, bringing total production by OPEC and its allies to a three-month high, according to the latest S&P Global Platts survey.

—Read the full article from S&P Global Platts

Container Freight Rates To North America From North Asia Trump Southeast Asia In A Rare Flip

Spot container freight rates from North Asia to North America have surpassed those from Southeast Asia to North America in an atypical market situation, S&P Global Platts data showed.

—Read the full article from S&P Global Platts

Resurgence Of COVID-19 Infections In India Raises Concerns Over Sugar Exports

The resurgence of COVID-19 cases in India highlights the ongoing concerns about the logistical challenges dampening the demand for sugar of Indian origin. India is currently experiencing a second wave of COVID-19 infections, with 403,738 new cases and 4,092 deaths reported on May 9, according to data from the World Health Organization.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.