By Laura Sanicola
U.S. refining giant Valero Energy shut a major oil refinery in Port Arthur, Texas, after a fire broke out at one of its critical diesel-processing units on Monday evening. No major injuries were reported.
The closure of the 380,000 barrel-per-day plant effectively shuts down 2% of the U.S. refining capacity and 14% of Valero's own capacity.
But fuel prices are so high and markets so tight due to the Iran war that investors are looking past it. Shares of the stock rose 3% on Tuesday, and are up 20% since the start of military action in the Middle East.
The market for what are known as distillate fuels, which include jet fuel and diesel, has become the pressure point in the Iran war. Disruptions to Middle East trade flows are disrupting nearly 1 million barrels per day of diesel flows, according to consultancy Energy Aspects. Another 4.6 million barrels per day of refining capacity at Middle East and Asian refineries, which yield large amounts of diesel, are also offline.
The reduced flow of diesel has sent prices soaring past crude oil futures. Diesel futures rose 6.6% on Tuesday and are up about 60% since the start of the war, compared with Brent crude oil's 4.2% rise today and 45% rise in the same time period. It has also trickled down to prices at the pump: Average retail diesel prices are currently around $5.35 per gallon, nearly $2 per gallon higher than year-ago levels, according to AAA.
"With the loss of Port Arthur, your distillate crisis has gone up another level," said Paul Sankey, analyst of Sankey Research, at an energy conference in Houston on Tuesday.
But for Valero, which is a massive producer of diesel on the U.S. Gulf Coast, the closure paradoxically contributes to high margins for producing diesel and gasoline that will likely benefit its existing plants.
"Any extended downtime of the plant would likely help keep both U.S. product markets tight and discounts wide on heavy sour barrels for Valero's other Gulf Coast refineries, as well as for competing Gulf Coast plants operated by Phillips 66, Marathon Petroleum, PBF Energy, and others," according to Matthew Blair, refining analyst at Tudor, Pickering, Holt & Co. He had previously said that Valero was the preferred way to play the current refining dynamics.
Marathon's stock is up around 6% today, while Phillips 66 is up 4.8%, and PBF Energy's stock is up 7.4%. These companies have seen shares rise between 40% and 70% year to date, bolstered by the Iran conflict.
Valero Port Arthur processes some of the "dirtiest," highest-sulfur crude oil in the world. Monday's fire was at one of its two diesel-treating units, which are designed to help the refinery convert the heavy oil into ultra-low-sulfur diesel while still meeting environmental specifications.
Because of the refinery's configuration, when it reopens it will be able to process diesel at its other unit, and it will likely be at 50% capacity, according to Denton Cinquegrana, chief oil analyst at OPIS.
That may be one another reason Valero stock was up today, Blair added.
Write to Laura Sanicola at laura.sanicola@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 24, 2026 14:46 ET (18:46 GMT)
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