US Products Outlook-Mogas soft despite strong ethanol

NEW YORK, June 16 (Reuters) - Midwestern and Gulf Coast gasoline values are expected to see only a whisper of support from spiking ethanol prices, which jumped on Monday as corn price soared, and that is likely to be short-lived, dealers said on Monday.

Heavy rains have created flood levels of historic proportions in some parts of the Midwest, wiping out corn plantings, closing ethanol plants and adding 10 cents to Midwest spot ethanol price offers early Monday.[ID:nN16477621]

However, Magellan Pipeline, which operates the largest oil products pipeline in the Midwest, experienced no logistical problems because of the heavy flooding.

"All truck loading systems at Magellan's eight Iowa terminals remain fully operational. In addition, all planned pipeline movements in Iowa and our Midwestern system are on schedule," said Bruce Heine, a spokesman for the pipeline.

Traders there said that they expected gasoline differentials to weaken eventually as high consumer prices have cut into demand.

"Basis differentials reflect the fundamentals to me. I sense more weakness in gasoline fundamentals than I do in ultra-low sulfur diesel," said one Midwestern trader.

Recent diesel demand in the Midwest is considerably lower than normal as the prolonged rainy weather has kept farmers out of the fields, waiting for the flood waters to recede before they can assess the damage of their newly seeded corn fields. [ID:nN13432653].

"Right now, there's probably 1 to 2 million acres in this country where farmers will not produce anything this year because of the flooding," analyst Steve Freed of ADM Investors Service said at a weather and crop outlook conference last week.[ID:nN123228726]

A fall off in recent export demand for ultra-low sulfur diesel is seen both from the Europe and South America, traders said, weakening the differentials for the fuel.

Cargoes out of the U.S. Gulf Coast have slowed on limited availabilities for barrels with European specifications.

"Transatlantic has slowed due to higher premiums for U.S. Gulf Coast avails with euro-specs or close to euro-specs," said one Gulf Coast trader.

Chile, which has been a big buyer of diesel from the U.S., is now seen cutting back on the level of purchases as normal rainfall has restored some of its hydro power, which had suffered due to droughts earlier in the year.

"Chile deferring additional purchase tenders due to hydro supply improving means less demand for diesel generators," said a trader.

Chile, which imports nearly all fuel it consumes, has been hobbled by poor rainfall as well as a cutback in natural gas from Argentina, forcing it to import large numbers of cargoes from the U.S. Gulf Coast.

(Reporting by Janet McGurty, Haitham Haddadin and Rebekah Kebede)