US Cash Products-USG leads rise amid Gustav fears

NEW YORK, Aug 26 (Reuters) - Gasoline and diesel differentials in the U.S. Gulf Coast surged about a nickel each on Tuesday on fears that Hurricane Gustav may disrupt supplies in the nation's refinery row by the weekend, traders said.

The strength in Gulf Coast spilled into other hubs, with gasoline and diesel gaining in the Midwest, traders said.

"All thinking is about the storm," said a trader in the New York Harbor, where gasoline values also rose, albeit slightly.

The U.S. National Hurricane Center said the storm could hit the Gulf Coast as a powerful Category 3 storm on Sunday, slamming into a region that is home to almost half of total U.S. refinery capacity. The Gulf also produces about a quarter of U.S. crude oil and 15 percent of natural gas output.

In refinery news, a fire hit a hydroformer unit at Exxon Mobil's (XOM.N) Baytown, Texas, refinery, but was extinguished and production was not affected.[ID:nN25296700]

Valero on Monday cited no impact to production from a weekend snag with compressors at its Texas City refinery.

The NYMEX complex was led higher by gasoline and heating oil futures, which both surged more than 2 percent on heightened worry over supply disruptions from the storm. [O/N]

"So, at this point, it appears that the market is a bit dominated by those buying 'storm insurance'," one Gulf-based market watcher noted in a report on Tuesday.

For a list of refinery outages, click [REF/US]

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U.S. Gulf Coast gasoline and diesel rose sharply early Tuesday on fears that Hurricane Gustav would enter the Gulf of Mexico over the weekend, disrupting refinery and oil production operations.

Prompt cycle 50 conventional M2 gasoline traded at 8.75 cents over the October RBOB futures screen at midday Tuesday with offers holding at 9.00 cents over, up from the 2.75 cents over traded late Monday.

Ultra-low sulfur diesel traded at 7.50 cents over the screen but offers moved up to 8.00 cents over the October heating oil screen. On Monday, it was pegged at 3.00/3.50 cents over the screen.

Low sulfur diesel traded at 4.00 cents over the screen, up from the 2.00 cents over on Monday.

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Any month conventional regular gasoline M2 was set at about 4.00 cents under the benchmark September RBOB futures, up marginally, traders said.

Reformulated F2 RBOB gasoline barrels were bid at 1.50 cents over over futures for any month barrels, up about a half cent from Monday's levels.

Asked if gasoline in the hub was reacting much to the storm headlines, a trader said: "We're up a little but not really."

Among the distillates heating oil barges were again offered flat at 1.00 cents under the screen and likewise ultra-low sulfur diesel offers were steady at 8.00 cents over futures and low sulfur diesel at 3.00 cents over.

Jet offers fell a quarter cent at 10.50 cents over.

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Group Three gasoline differentials crept back up on Tuesday, tracking the Gulf after being pressured by a build in Magellan pipeline inventories on Monday.

Group gasoline traded at 7.50 cents over the September RBOB contract, up 2.25 cents. Earlier, August any barrels traded at 4.60 and and 5 cents over.

Ultra-low sulfur diesel gained a cent from late Monday levels, trading at 13 cents over the September.

In Chicago, newly prompt cycle 1 gasoline was pegged up a penny at 13 cents over the board.

Same cycle ultra-low sulfur diesel was up about a penny and a half, pegged at 14 cents over the October heating oil contract. (Reporting by Haitham Haddadin, Janet McGurty, and Rebekah Kebede)