US Products Outlook-Diesel gets a boost from Midwest

NEW YORK, Oct 13 (Reuters) - Strong agricultural demand for diesel in the Midwest is putting a floor under sinking diesel differentials in the Gulf Coast, traders said on Monday.

Over the past few weeks, positive diesel cracks overshadowed negative gasoline ones -- not all that uncommon in the shoulder season -- keeping refiner profit margins in the black.

But the cut back in demand had some wondering if diesel cracks would also fall victim to the disarray in global financial markets which have tightened credit necessary for doing trade.

Warm weather with little rain over the corn belt this weekend made ideal conditions for the U.S. corn and soy harvest, creating strong demand. [ID:nN13456115]

"We're seeing harvest demand but spring rains mean sizable chunks of harvest still weeks away. It's going to be one of those years we see the harvest spread out all the way through November," said one Midwestern oil trader.

According to Midwestern trade sources, the Magellan pipeline -- one of three oil products pipelines that run from the Gulf Coast up into the Midwest -- got a delivery of 500,000 barrels of the ultra-low sulfur diesel over the weekend.

"It's a big one. We've been seeing spotty outages at the racks but now it's coming in pretty good. I think we've seen the worst on basis," said a Midwestern dealer.

The differentials -- or basis -- for ultra-low sulfur diesel in the Group Three hub was pegged at 24 cents over the screen early Monday.

Trade sources said that the upper tier of the pipeline, which is the major conduit for oil products into the Group Three market, was experiencing spotty outages of the product.

Prompt 61-grade ultra-low sulfur diesel from the Gulf Coast traded at 7 cents over the November screen, up two cents from Friday, on strong Midwestern demand.

"Midwest prices said send everything there," said one Gulf Coast broker. "TET went on transit because everything has been going to Explorer and Magellan."

TEPPCO, also known as TET, which runs a 320,000 barrel per day pipeline from the Texas Gulf Coast up to Indiana and then east into New York, said on Friday it would only ship nominated volumes for shippers because of lack of product in the system. [ID:nN10372914]

In the New York Harbor, jet fuel was the big decliner on Monday among the middle distillates, with trading at 18 cents over the benchmark November heating oil futures, down from 25 cents over the print midday Friday.

Traders said values of the grade may move lower yet.

"Jet is better offered. 18 has traded there so far today ... It's possible that jet might come off a little more over the week," one Harbor trader said.

"So far seeing plenty of it out there."