Nymex May Extend Heating Oil Contract, Reduce Sulfur Limit

CME Group Inc. is considering lowering the sulfur requirement in the existing New York Mercantile Exchange heating oil futures starting in May 2013 instead of replacing the contract.

CME announced July 27 that it would stop listing Nymex heating oil futures contracts beyond April 2013 as Northeast states consider cutting the amount of sulfur in heating oil. The exchange launched an ultra-low-sulfur diesel contract in 2007, which has no open interest as of yesterday.

“Liquidity will be easier to enhance” by keeping the existing contract, Dan Brusstar, director of research at the exchange in New York, said today in a telephone interview.

The heating oil contract has a maximum sulfur content of 2,000 parts per million, compared with ultra-low-sulfur fuel that must be below 15 parts per million. The contract is changing as New York State will lower the sulfur allowed in home heating oil to 15 ppm starting July 1 and New England and Mid-Atlantic states consider their own measures to limit sulfur.

Pennsylvania’s low-sulfur rule for heating oil will not be effective in 2012 as proposed, according to meeting minutes of the state’s Department of Environmental Protection on October 20. Sulfur standard regulations have not yet been submitted as final for consideration by an advisory board or the environmental quality board, Kevin Sunday, a spokesman for the department, said in a March 15 e-mail.

Pennsylvania Delay

“A lot of our customers don’t see the urgency to jump into the new contract” because state regulations in Pennsylvania haven’t been approved, Brusstar said. Keeping this existing heating oil contract “would allow companies to just roll positions into the new ultra-low-sulfur diesel specifications starting in May 2013 and beyond,” he said.

CME expects to make a final decision on changing the contract in a couple of weeks, according to Brusstar.

Motiva Enterprises LLC said March 8 it will convert its high-sulfur heating oil storage to ultra-low-sulfur in the second quarter of this year at the Seawaren terminal in New Jersey, which is a delivery point for the Nymex contract, to meet New York’s regulations.

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