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Heating Oil News
NYMEX to End Heating Oil Contract
August 2, 2011
The heating oil contract was introduced in 1978 after the removal of price controls in the United States. The old heating oil contract has long been used by traders to hedge their financial risk against unexpected price movements for distillate fuels, which include diesel, jet fuel and heating oil, marketwatch.com reported last week.
The contract is also bought and sold by Wall Street speculators for profit. Many blame speculators for artificially driving up the price of commodities, including crude, heating oil and gasoline.
The volume of heating oil contracts has risen in recent years. There was a 25.5 percent increase in the number of trades between 2009 and 2010, NYMEX parent company CME Group said.
But new rules requiring lower sulfur levels in heat fuels have led CME to end trading of the old heating oil contract.
“In response to changing environmental regulations in New York state requiring cleaner, lower sulfur standards of 15 ppm for heating oil, we have launched a New York Harbor ULSD contract with the same specifications,” Damon Leavell, a CME spokesman, said.
The heating oil contract will be replaced by ultra-low-sulfur diesel, a dual-use contract that can be used for hedging both heating oil and on-road diesel, Leavell said. The changes will take effect in April 2013.
Though there are three kinds of home heating oil, only the cleanest-burning, low-sulfur variety – no 2 heating oil – is commonly used in people’s homes. No 4 and no 6 heating oil fuels, which are sometimes called residual oils, are still used in many schools and apartment buildings but are being phased out in many areas.
New York Mayor Michael Bloomberg announced earlier this year the city was phasing out the dirtier oils by 2030 to reduce respiratory problems associated with their emissions. Affected building owners would be encouraged to switch to cleaner-burning no 2 oil or natural gas.
