As we've previously discussed, the CME/NYMEX has decided to keep the existing heating oil futures contract, which was previously due to be discontinued in April 2013 (originally January 2013) and to transition from the current low sulfur product to an ultra-low sulfur product. For more background information, see our previous post, CME to List Heating Oil Futures Beyond April 2013

Last week the CME issued a update stating that the transition from low to ultra-low sulfur heating oil futures will begin on April 29, 2012 with the May 2013 contract.  The  specifications will be the same as the specifications for Colonial Pipeline’s Fungible Grade 61 for ultra low sulfur diesel (ULSD).  The full details are available on the CME website. 

In addition, while it hasn't been well broadcast to the market, the CME recently listed additional months in heating oil futures, which currently extend to January 2016.

It's worth noting that just because the exchange is announcing the transition is not to say that an ULSD HO contract will attract the liquidity of it's older sibling.  Due to the ongoing changes in refining, as well as increasing in fuel consumption in the developing world, it's very well possible that, in due time, the Gulf Coast ULSD contract could become the dominant distillate futures contract in North America. 

On the other side of the pond, it appears that market participants aren't rushing to transition from ICE's high sulphur gasoil futures to the new, low sulphur gasoil futures.  Since it's debut in early February, the low sulphur contract has yet to attract much liquidity.  As of the close of trading on Friday, the June and July low sulphur gasoil contracts only had about 3,000 lots of open interest vs. the traditional gasoil June and July gasoil futures which has an open interest of about 247,000 lots.

So what does this all mean for those who hedge their distillate fuel risk with futures, swaps or options on heating oil and/or gasoil?  At the moment, not much, but prudent risk managers will keep all an eye on all of the relevant contracts as it is inevitable that the much of the liquidity will eventually transition to one or more of the newer contracts.