What are heating oil futures?
Heating oil futures were first traded on the New York Mercantile Exchange (NYMEX) in 1978. With the United States lifting price controls on heating oil in the mid 1970’s, producers and consumers needed a way to hedge their price risks. Heating oil futures provide a liquid market place where they can come together to trade.
New York Harbor Heating Oil
Since the delivery point for these futures is New York Harbor area, the first users where local wholesalers and consumers. As the contract became more popular, others around the world were using it to hedge not only heating oil prices, but also diesel fuel prices and jet fuel prices. Heating oil represents about 25% of the yield of a barrel of crude oil. Heating oil is also referred to as No. 2 oil.
New York Heating Oil Futures Contract Specifications
One heating oil contract is 42,000 gallons (1,000 barrels), with the minimum price fluctuations being $.0001 per gallon, or $4.20 per tick.
NYMEX heating oil futures can be traded three ways. One way is via open outcry or pit trading on the floor of the exchange. Pit trading hours are Monday through Friday from 9am to 2:30 pm Eastern Time.
Heating oil trading on CME Globex takes place Sunday through Friday from 6pm until 5:15pm Eastern Time with a 45 minute break beginning at 5:15pm.
Trading on CME Clearport occurs during the same hours as Globex trading.
There are also e-mini heating oil contracts. These contracts are financially settled and are half the contract size of the regular futures contract.
NYMEX Heating Oil Options
Heating oil options were introduced in June of 1987. This allowed more flexibility for producers and users to hedge their risks. Options trading hours are the same as the futures hours.
Home heating oil futures are also used to trade crack spreads with gasoline futures and or crude oil futures. This allows refiners to lock in the price differentials between refinery output and input prices. This lets them profit or protect against adverse changes in those values.