Bill,
You can probably do this in the lathe, by offsetting in the 4-jaw, the thing is you will need some extra stock in order to hold the piece in the chuck. If you don't have enough extra material to for chucking you will need to solder the blank to a chucking piece. If you are using brass or bronze, soft solder has enough strength to do this if you take it easy, and not take too much depth of cut per pass. This job will have what is called an "interrupted cut", where the toolbit makes an impact each time it cuts into the workpiece as it comes around. This puts more stress on the setup than if it was a continuous cut. Lighter feeds and shallower cut depth will reduce the effect of impact during machining.
PS - Tom, I think the "groove" Bill refers to is actually the radiused underside or "saddle" which allows the valve block to nest on the cylinder OD. Bill, correct me if I'm wrong.