UPDATE 1-Chicago CBOB switches cycle, opens arbitrage

(Adds traders' comments on arbitrage, diesel price)

Feb 25 (Reuters) - Chicago CBOB gasoline differentials in anew cycle that switched to trade against April RBOB gasolinefutures rose 5 cents a gallon on Tuesday on refinery buying,traders said.

The differentials for Cycle 1 CBOB gasoline were heard at14.00/12.00 cents under April RBOB gasoline futures against18.00 cents under on Monday.

The last cycle to price against March RBOB futures was 10cents higher than the new cycle. April RBOB futures were tradingat a 17-cent premium to March futures , hence theshift in the differentials between the front months.

That 17 cent spread between the two contracts has helpedopen an arbitrage in regional cash gasoline trading because theGroup Three market centered around Oklahoma, Kansas andNebraska, is still trading against the cheaper March contract.

With the costs of shipping on the Explorer pipeline fromTulsa, Oklahoma to Chicago at around 5 cents a gallon, onetrader said, it is worth buying Group Three gasoline at 5.50cents under the cheaper March contract and sending to Illinois.

"My thinking is, he is pumping back into Explorer andshipping to Chicago and doing really well against Cycle 1values," said another trader, referring to a BP Plc trader.

BP declined to comment.

The company operates a 405,000-barrel-per-day (bpd) refineryin Whiting, Indiana -- less than 20 miles away from Chicago.Sources told Reuters on Monday maintenance work on a unit hadstarted at the refinery.

The overhaul of a gasoline-making unit, a fluid catalyticcracking unit, would indicate BP needs to buy the grade to meetdeliveries. Chicago CBOB differentials jumped 7 cents due toBP's bidding last week, traders said.

Chicago ultra-low sulfur diesel (ULSD) differentials wereheard at 4.00/7.00 cents over April heating oil futures, about5.00 cents higher than their last cycle on Monday.

Group Three gasoline differentials were heard at 5.75/5.25cents under March RBOB futures, 1.00 cent lower. Group ThreeULSD differentials were also a cent lower at 4.25/3.75 centsunder March heating oil futures.

(Reporting by Sabina Zawadzki in New York; Editing by JonathanOatis)