Chicago Exxon Futures Increase After Storm Forces Plant Shut Down Despite Nationwide Futures Falling

Residents question news that gas prices likely to soar following Joliet plant shutdown even while futures almost immediately began to increase following storm

Exxon plant in Joliet IL shuts down following stormPhoto byScreen Capture/Youtube Video [Creator]

The Chicago metropolitan area is bracing for a massive surge in gas prices following a severe tornado that barely avoided causing significant damage to a major ExxonMobil refinery near the city. The tornado, which struck Monday night, resulted in a power outage at the facility, raising concerns about the local fuel supply. The incident also lead to a flaring incident where excess gas was burned off as a safety precaution.

The affected refinery, known as ExxonMobil’s Joliet Refinery, is situated in Channahon, Illinois. Channahon Fire Chief John Petrakis confirmed on Wednesday that the tornado passed just across Interstate 55 from the refinery, narrowly averting a direct hit.

The outage triggered a surge of panic buying in the Chicago wholesale market, driving up prices for refined products in the area. On Wednesday, Chicago diesel traded at a discount of 2.50 cents compared to the ultra-low sulfur diesel futures benchmark, a significant increase of 15.25 cents from Tuesday. As a result, gasoline futures for the Chicago region experienced a notable increase, with prices rising by approximately 11 cents per gallon in trading on Tuesday just hours after the storm.

It is not unusual that stock prices for natural gas increase after a major natural disaster causes damage to a major plant. However, after Hurricane Beryl’s hit on the Houston area closing down shipping lanes used by boats carrying oil, and damage to oil platforms and refineries in the area, experts were skeptical gas prices in the region would rise. This proved to be accurate with the damage not being enough to raise prices, and futures also did not increase.

Andy Lipow, president of Lipow Oil Associates, highlighted the significance of the power outage, noting its impact on the refinery's operations. He stated that possible damage to this single refinery and being shut down for around a week is major enough to have a impact on local prices.

“There are three refineries in the Chicagoland area: BP in Whiting, Indiana, with a capacity of 440,000 barrels per day; ExxonMobil Joliet at 275,000 barrels per day; and Citgo in Lemont, Illinois, at 194,000 barrels per day,” Lipow explained. “When one of these refineries shuts down, there is little to no cushion of extra supply in the area.”

However, there is no explanation for why local area stocks increased significantly so soon following the storm before there was any indication that gas prices would likely see a major increase over the summer

The increase in wholesale futures for Chicago continued into Wednesday, with prices rising another 4 cents per gallon, according to Tom Kloza, global head of energy analysis at the Oil Price Information Service (OPIS). Despite relatively weak oil prices nationally this summer, the disruption at the Joliet refinery is significant enough to potentially impact local prices.

The National Weather Service reported that the storm system that hit the area on Monday night produced 11 tornadoes in the greater Chicago area, including the one that impacted Channahon. The process of returning the Joliet refinery to normal production is expected to take several days, provided there is no additional damage beyond the power outage.

ExxonMobil has not yet responded to inquiries regarding the extent of the damage or its operational plans. If the damage results in prolonged production delays, gasoline may need to be transported from the Gulf Coast via pipeline, which would take several weeks to reach the Chicago market, Lipow noted.

Lipow also predicted that gas prices in Chicago would start to rise quickly. The current average price in the Chicago area is $4.07 per gallon, according to AAA, which is already one of the highest in the nation. This average price, based on Tuesday’s figures prior to the storm, was down 1 cent from the previous day.

The potential increase in gas prices comes as an unwelcome development for Chicago residents and businesses, who may face higher transportation costs in the wake of the refinery disruption.