Trade Heating Oil Futures on NYMEX
You can trade Heating Oil futures on the CME Globex electronic trading platform through NYMEX.
This commodity is the second largest distillate product (25%) from the oil refining process.
Heating oil or No.2 heating oil, as it is called in the US, can be traded either as a physically settled contract or as one that is financially settled.
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The standard heating oil physical contract is 42,000 gallons (1,000 barrels) per trade unit and settlement is for delivery in New York harbour.
Minimum price fluctuation for the heating oil futures is $0.0001 per gallon and the contract trades for 36 consecutive months. Margin levels
Margins for trading depend on whether or not you are a member of the exchange. For members, the present level is $8,250, while non-members have to make available $10,125. Remember these figures can change if NYMEX deems it necessary due to changes in market conditions.
Hedging and Contango
Some commercial consumers will use heating oil futures as a means of hedging diesel and kerosene, and so if there are supply constraints or demand surges for diesel, this can be reflected in the price of No.2 heating oil on NYMEX.
With the global economy now in a phase of strong demand for commodities, and particularly hydrocarbon based products such a oil, diesel, kerosene and heating oil, it is worth noting the price trend of futures for these products.
While crude oil is in backwardation at the time of writing, June 2008 heating oil futures are at 3.636, August 2008 at 3.6610, October 2008 at 3.6870 and November 2008 at 3.6940, showing the classic contango pattern.
Manage risk with Swaps
As well as the open futures, physically and financially settled, NYMEX also offers through its ClearPort trading platform a series of heating oil swap futures. These contracts are a way of managing risk by trading on spread or price differences between kerosene and diesel prices on the one hand and NYMEX New York harbour heating oil.
Heating oil is a mixture of hydrocarbons with between 14 and 20 carbon atoms, and it emerges from the distillation of oil in a temperature range above kerosene but below that of heavier products such as bitumen and petroleum jelly.
This flammable, low viscosity, liquid petroleum product is used in residential boilers and industrial furnaces, and its use is very common where natural gas is not readily available. In Britain it is referred to as “red diesel” because of the red dye which is added to the product.
This is done so that it is distinguished from mainstream diesel which along with gasoline (petrol) is subject to much higher fuel duty. Its main uses are in agricultural and industrial machinery.
Get on the trading platform
Whether you are living in Michigan, Buenos Aires, London or Berlin, you have the opportunity through a growing choice of electronci trading platforms to surf the global commodity markets.
With such a system literally at your fingertips, you are in a position to trade heating oil futures contracts on the CME Globex platform.
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