Petroplus is to file for insolvency, putting around 1,000 jobs at risk at one of the largest UK oil refineries.
Coryton refinery in Essex - which supplies 20 per cent of fuel in London and the South East - halted sales yesterday and told its staff it was unsure when supplies would start again.
The shutdown at the former BP-owned refinery - with a total capacity of 175,000 barrels of crude oil per day - comes as Petroplus, its Zurich-based owner, said talks with its lenders had broken down and it had appointed a receiver to the UK refinery.
Petroplus, which saw its credit rating downgraded by Standard & Poor's earlier this month and suspended shares yesterday, said it would also file for insolvency.
Close to the M25, the 586-acre Coryton refinery was bought by Petroplus from BP for $1.4 billion in June 2007. The site became operational in 1953 and produces petrol and diesel, including new "cleaner" fuels, aviation fuels, liquefied petroleum gas (LPG), fuel oils and bitumen.
A group of European parliamentarians including East of England MEP Richard Howitt have been meeting to discuss ways to save jobs at Petroplus, which has facilities in France, Germany, Belgium, Switzerland and the UK.
Howitt told BBC Radio 5 Live the refinery was being dragged down by its parent company. He said half the jobs were well-paid, highly skilled positions, while the other half were contractors, many of whom have already received their redundancy notices.
"One thousand job losses in Essex will have a devastating impact on the local economy. I don't want to be alarmist about this, but I don't want to be dishonest either. Supplies across London and the South East could be affected and I have been told this could impact the Olympics," he said.
Linda McCulloch, national officer at the Unite union, said: "One thousand jobs are at risk but we firmly believe that joint action by the owners and Government can help secure the business."
Unite said it was in constant dialogue with Petroplus and the UK Government about a potential solution to the developments.
McCulloch said: "It is vital that these negotiations are conducted in an atmosphere of calm to allow the best buyer to be found for the site."
The refining market has come under pressure in recent years as operating expenses and the cost of crude oil surge at a greater rate than the value of the products.
A survey carried out by energy consultancy Wood Mackenzie in 2010 showed 29 of 96 refineries in the EU did not generate a positive net cash margin.
However, the market has become tougher as the economic downturn in Europe has hit demand for transport fuels and competition has grown from the refineries in Asia.
Petroplus reported a net loss of $413 million in the first nine months of last year, while in December its banks withdrew a $1.05 billion portion of its $2.01 billion credit facility.
The other main supplier for the South East and London is the Exxon Mobil refinery in Fawley, near Southampton.
BP, a major customer of the Coryton refinery, said it had no immediate supply issues but it was "watching the situation very closely".
A Department of Energy and Climate Change spokesman said: "The refinery remains operational. We understand that a process is under way to put in place the necessary commercial arrangements to deliver product into the market.
"Companies have already made alternative arrangements to ensure adequate supply of products are available while these commercial arrangements are being put in place."