An explosion and fire at a major Texas refinery caused significant increases in gasoline and diesel futures prices during Tuesday's trading, adding to upward pressure on oil prices already heightened by the Iran conflict. The incident occurred at the Valero refinery in Port Arthur on Monday, with the fire still burning into Tuesday morning. The company has not yet responded to requests for comment.
In early Tuesday trading, wholesale gasoline prices rose approximately 10 cents per gallon, while diesel increased by 16 cents per gallon, according to Andy Lipow, president of Lipow Oil Associates. He attributed these gains primarily to the refinery incident rather than geopolitical tensions. Crude oil futures saw only modest gains Tuesday, following a sharp decline the previous day when President Trump reported positive progress in ceasefire talks with Iran.
Lipow stated that the explosion and fire affected the refinery's diesel production unit, which will likely remain offline for an extended period, potentially driving diesel prices higher. However, he indicated that gasoline production units could restart within weeks. The oil consultant suggested the incident appeared to be an industrial accident rather than a deliberate terrorist attack.
AAA data released Tuesday showed U.S. retail gasoline prices have increased by $1.03 per gallon over the past month, a 35% rise bringing the average to $3.98 per gallon—the highest level since August 2022. Diesel prices have surged even more dramatically, rising $1.62 per gallon (43%) to $5.35 per gallon.
While fewer American households use diesel vehicles, diesel fuel remains crucial for trucking and agriculture, meaning price increases could elevate costs for many consumer goods. Most major trucking companies have built-in fuel surcharges that automatically raise shipping costs. Additionally, diesel powers agricultural equipment as the spring planting season approaches.
The affected refinery, among the ten largest in the United States, processes 435,000 barrels of crude oil daily and employs 770 workers. No injuries have been reported. Local authorities advised nearby residents to shelter in place due to heavy smoke that closed two highways, though the warning was lifted later Tuesday morning.
Meanwhile, renewed conflict between Israel and Iran overnight Tuesday dampened expectations for a quick resolution to the four-week Middle East war, pushing oil prices higher. Global benchmark Brent crude rose nearly 1.8% to $101.70 per barrel, while U.S. benchmark WTI crude increased 2.8% to $90.60 per barrel.
On Monday, Brent had surged above $114 per barrel after President Trump threatened to "destroy" Iranian power plants if Iran didn't reopen the Strait of Hormuz. Prices then plummeted when Trump announced "very positive and productive discussions" about ending the war and delayed military strikes for five days, closing at $99.94 per barrel.
Iran has denied any dialogue with Washington, though sources indicate other countries including Turkey and Egypt are mediating. Pakistan has offered to host negotiations. Jim Reid, Deutsche Bank's global head of macro research, noted markets viewed potential talks as "a major positive" that could lead to a quicker conflict resolution, while emphasizing that progress depends on whether optimistic statements translate into concrete actions.
Despite reports of potential negotiations, Iran and U.S. ally Israel continued strikes overnight Tuesday. The Israeli military deployed rescue teams to "multiple locations" including Tel Aviv after missile attacks, while Israeli air strikes hit over 50 targets in Iran and intensified strikes in southern Lebanon.
Global stock markets showed mixed performance Tuesday as investors weighed ceasefire hopes against ongoing hostilities. Asian markets recovered some of Monday's losses, with Seoul, Tokyo and Hong Kong closing higher. European markets declined in early trading, partially reversing previous gains, while U.S. index futures also trended lower.
Investment platform Saxo Bank strategist Neil Wilson commented that "yesterday's optimism has failed to hold and hasn't really carried through into today."