US Products Outlook-Flu weighs jet, exports help other fuels

NEW YORK May 4 (Reuters) - New York Harbor jet fuel was still seen pressured by fears over a global flu pandemic, but an expected rise in diesel and gasoline exports may lift differentials in the Gulf Coast this week, traders said Monday.

Jet fuel price differentials in the Harbor moved into the negative at the start of the trading week from a small premium on Friday. Offers stood at 0.75 cent under the higher NYMEX June heating oil contract with little bidding compared with 1 cent over at the end of last week, when it fell about a penny.

Jet fuel was flat in the Gulf on Monday, traders added.

"There's no buying," said a NY Harbor distillates trader. "It is very well offered, little to no buying and the swine flu scare is keeping people off planes."

Mexico, the epicenter of the outbreak, said it was winning the battle against the new strain of flu as it stayed largely shut for business and cases dropped, but global health officials hinted a pandemic was still likely.

Harbor oil products are expected to be pressured soon from the sequential restart of process units by Valero Energy Corp's (VLO.N) 210,000 barrel-per-day total throughput Delaware City, Delaware, refinery. But traders said that some time was needed for the refiner to build up stocks.

Valero spokesman Bill Day said on Monday that the restart process at Delaware City was progressing. "The FCC is the only main production unit in operation; the others will be restarted in sequence over the next several days," he added in an email.

Valero's 325,000-bpd Port Arthur, Texas, refinery will restore a 55,000 bpd hydrotreater to operation in the next 48 hours, a source familiar with refinery operations said Monday.

SUMMER DRIVING SEASON IN SIGHT

With the summer driving season inching closer, eyes in the energy complex will be on Wednesday's government weekly oil data, in particular gasoline stockpiles in the wake of a massive counter-seasonal drop of 4.7 million barrels to 212.6 million reported last Wednesday.

As a result, the year-on-year motor fuel supply surplus dropped in the April 24 week to 1.5 million barrels, or 0.7 percent above year ago levels, noted Stephen Schork, editor of The Schork Report.

"The start of the U.S. summer driving season is just three weeks away. Thus, it is reasonable to expect further tightening in the curve," Schork added in a report on Monday.

A preliminary Reuters poll of analysts on Monday shows they expect Wednesday's data to show a small build of about 700,000 barrels in U.S. gasoline stocks for the week ending May 1, and a rise of about 1 million in supplies of middle distillate, atop the prior week's 1.8 million barrel distillate build.

EXPORTS SUPPORTIVE

In the U.S. Gulf Coast, dealers also said that an upswing in the number of barrels for export of diesel and gasoline may lift differentials this week.

Diesel price differentials "might be about ready to turn a corner" after being depressed due to agricultural demand which was delayed by wet weather, one Midwest broker said.

"Work is starting to pick up," he said.

A steep contango in the NYMEX heating oil futures crude reflects a recent build up in distillates supplies in the United States due to lower demand in a weak economy. The benchmark June futures were 3.5 cents below July on Monday.

"If not for export opportunities, the diesel market would simply be dead in the U.S.," one market watcher said in a recent report.

"Commercial demand in the U.S. remains weak while production remains more than adequate. This normally translates in weaker prices ... but that has not happened," he added.

Wet weather continues in the southern and eastern Midwest, delaying and disrupting corn planting, but significant planting progress has been made in some northwest areas, according to the private forecaster DTN Meteorlogix. [ID:nDTN606]

Cool wet weather in the southern plains of the United States favors the developing crop, but may have adverse impacts if the weather continues, DTN said.

Gasoline differentials in the Midwest are likely to be flat to lower this week, with inventory levels in the Magellan pipeline at a record high. (Additional reporting by Gene Ramos) (Reporting by Haitham Haddadin and Rebekah Kebede; New York Energy Desk; +1 646 223 6045; Reuters Messaging: haitham.haddadin.reuters.com@reuters.net))))