ICE Futures Proposes Extension of Primary Gasoil Contract

The ICE Futures Europe exchange proposed an extension of trading of its primary gasoil contract, used to price diesel, heating oil and jet fuel, and scrapping parallel futures that were introduced in 2011.

The bourse, a unit of IntercontinentalExchange Group Inc., is consulting members about extending the gasoil contract beyond its current end date of January 2015, according to a circular posted on its website today. ICE also proposes changing the contract’s specification to meet the region’s clean fuel requirements, capping sulfur content at 10 parts per million.

The proposal would discontinue a separate low-sulfur gasoil contract introduced in September 2011, for which trading volumes in the most-liquid front-month contract haven’t exceeded 1,000 lots a day for more than a year. About 43,000 lots a day of ICE’s primary front-month gasoil contract have traded in the past year, according to ICE data.

“There’s liquidity in the older contract,” Ehsan Ul-Haq, a senior market consultant at KBC Energy Economics in Walton-on-Thames, England, said today by phone. “If refiners are still able to hedge by using the old contract, they will be reluctant to move.”

ICE is seeking feedback from market participants by April 25 and proposes for the changes to take effect after the close of business on May 30, the exchange said.

“Recent discussions with a range of gasoil market participants have led the exchange to believe that it is now appropriate to propose an alternative mechanism for transition to a low-sulfur gasoil specification,” it said in the circular.

Current low-sulfur futures will be available for contracts until January 2015 and open positions beyond February 2015 will be migrated to the the primary gasoil contract under the plan, the exchange said.

The New York Mercantile Exchange, a unit of CME Group Inc., replaced its heating oil futures with ultra-low-sulfur diesel last year by lowering the sulfur specification of the contract to 15 parts per million.

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