U.S. diesel prices hit a record high, compounded by refinery shutdowns in the Midwest.

With U.S. diesel prices already at record highs, the sudden shutdown of a major refinery in the Midwest has further exacerbated the risk of tightening fuel supplies in the region. If the shutdown lasts longer than expected, the pressure on diesel prices could be transmitted to the gasoline market, pushing up fuel costs in several Midwestern states.

ExxonMobil's 275,000-barrel-per-day refinery in Joliet, Illinois, was forced to shut down on Sunday after a power outage triggered a safety burn-out system. According to Reuters, documents from the plant disclosed on Thursday that a pumping station was also flooded. ExxonMobil stated that the power outage was due to a failure in the ComEd main and backup power lines supplying the refinery, and power was fully restored on Thursday, but fuel production has not yet restarted.

Meanwhile, price pressures in the US diesel market are already significant. Latest AAA data shows that the average retail price of diesel across the US has risen to $6.45 per gallon, a record high. Market analysts warn that if the Joliet refinery shutdown is extended, fuel supplies in states such as Illinois, Indiana, Ohio, Wisconsin, and Michigan could tighten further, with gasoline prices in some areas potentially exceeding $5 per gallon.

Joliet refinery shutdown puts pressure on fuel supply in the Midwest

The Joliet refinery, located about 40 miles southwest of Chicago, produces approximately 11 million gallons of gasoline and diesel per day, primarily supplying the Midwest market. Its crude oil processing capacity accounts for about 6% of the Midwest's total refining capacity and about 1.5% of the nation's total refining capacity, making it a vital player in the regional fuel supply system.

Patrick De Haan, director of petroleum analysis at GasBuddy, said that spot diesel prices in the Great Lakes region have now risen to the highest level in the U.S., reaching $240 per barrel. He expects gasoline prices in Ohio to face a higher risk of increase, Wisconsin and Indiana to face a medium risk, and Michigan and Illinois to face relatively lower risks, although some areas may still see prices exceed $5 per gallon.

Compared to gasoline, the pressure on the diesel market is more widespread. De Haan stated that diesel prices in most of the aforementioned states face a moderate to significant risk of increase. With national diesel retail prices already at record highs, the ability of the Joliet refinery to resume production quickly will be a crucial variable influencing fuel supply and price trends in the Midwest.

Global refining capacity is under pressure, and rising diesel prices may be passed on to gasoline.

The shutdown of the Joliet refinery is not an isolated incident. Global refining capacity continues to be disrupted, and fuel supplies are already under pressure. Goldman Sachs commodities analysts Yulia Zhestkova Grigsby and Daan Struyven warned earlier this week that global diesel supply shortages could further spill over into the gasoline market.

Refiners may prioritize producing higher-margin diesel in a tight supply environment, thereby squeezing out gasoline output. Mike McGlone, senior commodities strategist at Bloomberg Intelligence, said on Monday that a diesel price of $6 per gallon is reminiscent of the 2008 gasoline shock, highlighting the current price pressures in the fuel market.

If refinery shutdowns and global supply disruptions continue to overlap, rising fuel prices could further push up inflation expectations and put pressure on interest rates and risk assets. Meanwhile, the tense security situation in the Strait of Hormuz and geopolitical risks continue to support oil prices, leaving global energy markets with high levels of uncertainty.

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