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The heating oil futures contract has been traditionally used as a proxy for hedging diesel fuel. However, in recent years, environmental regulations have required a dramatic reduction in the sulfur content of diesel fuel, making the price spread between the two more volatile. To help refiners, wholesalers, and retailers hedge financial risk and aid in price transparency, NYMEX has listed two diesel futures contracts.
The New York Harbor ULSD futures contract, coded LH, features physical delivery of 15 PPM Sulfur ULSD using the Colonial Pipeline specifications for 61 Grade ULSD. Delivery takes place following termination of trading. The delivery terms in New York Harbor are identical to the delivery requirements for the New York Harbor Heating Oil Contract. The final settlement price is based on the average-weighted price of trades done in the closing range on termination day.
Government regulations currently require diesel fuel refiners to produce a minimum of 80% of diesel fuel as ULSD. In 2010, refiners will be required to produce the entire diesel pool as ultra low-sulfur grade. New York serves as one of two key trading centers in the cash market, the other being the Gulf Coast
The contract is dually listed on the trading floor and CME Globex® electronic trading system. It trades in 42,000-gallon lots. |
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