A refinery owned by Valero Energy (VLO: sentiment, chart, options) is operating at reduced capacity following an explosion this morning in a sulfur loading tank. The cause of the fire at Valero's Houston refinery is under investigation. Earlier today, the explosion spewed sulfur vapors into the air, and prompted officials to open a shelter for affected neighbors. Four workers were taken to the hospital for evaluation. However, a Valero spokesman said the loading tank fire doesn't pose any further threat to the community.

Valero added that its production will also be affected by ongoing storm activity. The company said today that interruptions to shipping along the Houston Ship Channel and the Sabine Pass ship channel could reduce its production, though the refineries affected were not named. Inbound traffic to both channels was halted this morning due to choppy waters in the Gulf of Mexico, with outbound traffic expected to stop later today. Refineries served by the 2 channels account for about 19% of U.S. refining capacity.

At last check, VLO is more than 4% lower due to the double-barreled production concerns. The equity is down 53% year-to-date, and is facing multiple layers of overhead resistance as a result of its lengthy downtrend. A wealth of bullish sentiment from option traders indicates that more downside could be in store; the current Schaeffer's put/call open interest ratio of 0.45 is just 7 percentage points away from an annual optimistic peak.