The Joliet Refinery Crisis: A Bull Run for Midwest Diesel and Resilient Refiners?

The July 2024 outage at ExxonMobil’s Joliet refinery—a critical hub for Midwest fuel production—has exposed vulnerabilities in regional refining capacity while creating a rare opportunity for investors to capitalize on supply-driven price spikes. With diesel differentials soaring to +21.5 cents vs. NYMEX futures and gasoline inventories plummeting, the disruption has tightened an already fragile market. This article outlines why long positions in Midwest diesel futures and select refinery stocks like Citgo (Lemont) and Marathon Petroleum (MPC) are poised to benefit from this imbalance.

The Joliet Outage: A Perfect Storm for Midwest Fuel Markets

On July 15, 2024, an EF-1 tornado and severe storm system triggered a power outage at Exxon’s Joliet refinery, halting operations for 251,800 barrels per day (b/d) of refining capacity. The outage disrupted 40% of Chicago’s refining output, forcing competitors like BP, Marathon, and Phillips 66 to scramble for alternative crude supplies.

The immediate impact was stark:
- Chicago gasoline prices spiked to $4.07/gal, with futures surging ~11 cents/gal in a single day.
- Midwest ULSD futures traded at a 21.5-cent premium to NYMEX benchmarks, reflecting supply shortages.
- Gasoline inventories fell to 4%-7% below the five-year average, with no spare capacity to offset demand.

While Exxon’s refinery resumed operations by mid-August . . . the damage was done. Concurrent maintenance at Ohio refineries (Cenovus’s Lima and Toledo facilities) and logistical bottlenecks prolonged the imbalance, leaving the Midwest overly reliant on Gulf Coast imports—a process that takes 2–3 weeks and strains pipeline networks.

Why Diesel Futures Are the Prime Play

The outage has created a structural shortage of distillates in the Midwest, favoring investors in Midwest diesel futures. Key catalysts include:

1. Limited Spare Capacity: The region’s refining system lacks redundancy. BP’s Whiting refinery (440,000 b/d) and Citgo’s Lemont (194,000 b/d) operate near full capacity, leaving little buffer for unplanned outages.
2. Logistical Headwinds: Gulf Coast imports face delays due to pipeline constraints, prolonging regional price premiums.
3. Winter Demand Looming: A cold snap or additional outages could amplify the deficit, driving prices higher.

Refinery Resilience Plays: Targeting Flexibility and Infrastructure

While Exxon’s swift restart (ahead of expectations) limits its long-term exposure, refiners with robust infrastructure and third-party supply flexibility stand to profit from the disrupted market:

1. Marathon Petroleum (MPC)

• Why Buy?: Marathon’s Gulf and Midwest refineries can ramp up production to meet regional demand, while its Andeavor Logistics pipeline network ensures efficient crude transport.
• Catalyst: A 10% rise in Midwest diesel prices could boost MPC’s refining margins by $0.15–0.20/gal.

2. Phillips 66 (PSX)

• Why Buy?: PSX’s Sweeny refinery (Texas) and North Dakota Bakken crude access provide cost advantages, while its Midwest terminals allow it to capitalize on supply gaps.
• Catalyst: PSX’s third-party refining contracts (e.g., with Citgo) position it to capture higher rates in a tight market.

3. Citgo’s Lemont Refinery (Indirect Play via PDVSA)

• Why Monitor?: Citgo’s 194,000 b/d Lemont facility has maintained uptime amid the crisis, benefiting from its Canadian crude feedstock flexibility. Investors can indirectly gain exposure via PDVSA bonds or by tracking its operational resilience.

Risks and Mitigation Strategies

• Extreme Weather: A repeat of tornadoes or winter storms could disrupt operations again. Monitor NOAA’s severe weather forecasts.
• Regulatory Scrutiny: Exxon’s outage may draw attention to infrastructure resilience standards, potentially raising compliance costs.
• Global Supply Gluts: A sudden oversupply from OPEC+ or Gulf Coast refineries could depress Midwest prices.

Mitigation:
- Hedge against weather risks using derivatives.
- Focus on refiners with diversified feedstock (e.g., PSX’s Bakken access) or storage capacity (MPC’s terminals).

Conclusion: Act Now Before the Window Closes

The Joliet outage has ignited a short-term supply crisis that will sustain Midwest diesel premiums for months. Investors who go long on ULSD futures and pair positions with resilient refiners like MPC and PSX can capitalize on this imbalance. While risks loom, the near-term catalyst of winter demand and logistical bottlenecks makes this a high-reward, high-conviction trade.

Action Items:
1. Establish a long position in CME ULSD futures (symbol: HO) with stop-loss at pre-outbreak prices.
2. Buy shares of Marathon (MPC) and Phillips 66 (PSX), targeting 10% upside in Q4.
3. Monitor the Chicago gasoline/diesel differential (CBOB vs. ULSD) as a leading indicator of supply tightness.

The Joliet crisis isn’t just a disruption—it’s an opportunity.

Stay ahead of the curve with real-time refinery utilization data and futures price trends.