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The Zacks Analyst Blog Highlights: Royal Dutch Shell, Valero Energy, PBF Energy, Kinder Morgan and Marathon Petroleum

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For Immediate Release

Chicago, IL – May 14, 2021 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Royal Dutch Shell plc RDS.A, Valero Energy Corporation VLO, PBF Energy Inc. PBF, Kinder Morgan, Inc. KMI and Marathon Petroleum Corporation MPC.

Here are highlights from Thursday’s Analyst Blog:

Colonial Pipeline Outage: What You Need to Know

The five-day closing of Colonial Pipeline — a crucial piece of infrastructure that transports gasoline to the Southeast and East Coast — has reduced the fuel's supply and raised prices at the pump in several U.S. regions during the past few days. While the system's operator has initiated operations, the incident has disrupted American energy supplies and impacted millions of people.

So, here's a rundown of everything that happened.  

Colonial Pipeline: The Biggest Fuel Conduit in the U.S.

Colonial Pipeline carries around 2.6 million barrels of gasoline, diesel, jet fuel and other products each day from the Texas Gulf Coast refining hub to the New York metropolitan area. It has two primary shipping lines, Line 1 (for gasoline) and Line 2 (for other fuels).  

In particular, the 5,500-mile system transports almost half of all fuel consumed on the East Coast. It serves most of the Southern states, some 26 oil refineries and several major airports. The pipeline is managed by Colonial Pipeline Co. – owned by oil supermajor Royal Dutch Shell, privately held corporation Koch Industries and a consortium of foreign and domestic investment firms. 

What Happened

On Friday, the pipeline was crippled following a cyberattack by hackers who took control of the computer systems and demanded a ransom to release them. The breach, which also affected some of its information technology systems, forced Colonial Pipeline, the Alpharetta, GA-based private company, to temporarily stop all operations. With the help of cybersecurity agencies, the operator is investigating the extent of the attack, while apprising law enforcement and federal agencies.

Impact on Supplies and Consumer Prices

The disruption has led to long lines at the pump, driven up prices and left thousands of service stations along the U.S. East Coast without fuel to sell. As North America's biggest fuel pipeline's shutdown dragged on, panic buying has worsened the supply situation and increased gas prices in several Southeast states. According to the American Automobile Association ("AAA"), average national prices at the pump have climbed 8 cents from the previous week to above $3 a gallon — the highest in almost seven years.

With the transportation of aviation fuel also suspended, airlines had to put additional stops to a few of its long-haul routes out of Charlotte, NC. Meanwhile, some carriers like Southwest Airlines and United Airlines were being forced to take extra fuel on flights.

Fears of Inflation

The supply shock comes at a time the country's energy industry is starting to rebound sharply on vaccine progress and the ongoing macroeconomic recovery. Moreover, with the peak summer driving season approaching, demand was expected to be strong with Americans again taking to the streets following a year of curbs. A prolonged outage could also flare up inflation by pushing retail prices up when oil is already on the move higher. 

Alternate Supply Arrangements

The sudden interruption left traders and crude retailers scrambling to get supplies via sea or other alternatives to send fuel to the East Coast. Some emergency barrels of gasoline and diesel are already on their way from Texas to the southeastern cities via truck.

Moreover, with refiners including Valero Energy desperately looking for space to store the excess barrels they would normally put into the Colonial, oil tanker charter rates surged. Meanwhile, Gulf Coast refiners reduced processing rates in response to the supply artery's extended shutdown.

You can see the complete list of today's Zacks #1 Rank stocks here.

Government Action

The White House established an interagency task force to address the attack, while easing a raft of safety and environmental guidelines to facilitate the transportation of fuel by truck, ship or even rail to tackle shortages at big cities and airports. At the same time, Washington officials sought to calm the public that there is nothing to cause alarm. If the Colonial Pipeline restart was delayed further, the government had the option to waive an obscure maritime law called the Jones Act, which would allow overseas tankers to ferry petroleum products between U.S. ports.

Winners & Losers

Industry observers believe that PBF Energy, a refiner with a large footprint in the Northeast, could benefit from the Colonial Pipeline downtime. They also see windfall gains for energy infrastructure provider Kinder Morgan as it strives to carry additional volumes through its pipeline systems. On the other hand, downstream biggie Marathon Petroleum could lose millions in revenues as it is temporarily unable to send its products through Colonial. 

Service Restoration Update

Down since late Friday, the Colonial Pipeline operator, which manually resumed operations on a segment (from North Carolina to Maryland) on Monday, was hopeful of reaching its "goal of substantially restoring operational service by the end of the week". Per the latest updates, the conduit returned to service Wednesday evening.

Wrap-Up

It remains unclear as to when this major fuel artery will be fully back online from the ransomware attack. But what is clear is that despite being the safest and most cost-efficient delivery network to transport petroleum products around the country, pipelines are highly vulnerable to sophisticated intrusions that could play havoc with the nation's energy security.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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Valero Energy Corporation (VLO) : Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
 
PBF Energy Inc. (PBF) : Free Stock Analysis Report
 
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
 
Kinder Morgan, Inc. (KMI) : Free Stock Analysis Report
 
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