CORRECT: CME Eyes 2013 ULS Diesel Contract, Replacing Heating Oil

Responding to state government moves to reduce the sulfur content in home-heating oil, a CME Group Inc. (CME) executive said Wednesday the exchange is weighing a move to replace its New York Harbor heating oil contract with an ultra-low-sulfur diesel fuel contract sometime in 2013.

The move would mean the end of the inaugural energy futures contract, which began trading on the New York Mercantile Exchange in 1978, leading an upheaval that changed the way crude oil and petroleum products are priced and sold globally.

Officials in New Jersey said this week they will require home-heating oil sold in the state to have a sulfur-content of no more than 15 parts per million beginning July 1, 2016. That would put heating oil in the state on par with existing standards for ultra-low-sulfur diesel fuel, currently used in truck engines. Currently, heating oil in the state could have a sulfur content of 2,000 ppm or more.

In July, New York approved a sharp reduction in sulfur in heating oil to 15 ppm in 2012, which is fours year earlier than the timetable that New Jersey favored.

Confusion over which the conflicting state fuel specifications prevented Nymex from listing heating oil futures contracts three years out as had been typical.

But because most deliveries under the Nymex heating oil contract are made to terminals in New Jersey, the exchange has listed contracts to January 2013 trading under the existing standard, which is the prevailing standard in New Jersey, said Dan Brusstar, CME group director for energy research and product development.

Brusstar said the exchange will likely decide in the "next couple of months" to switch the heating oil contract to an ultra-low-sulfur diesel contract, with a 15-ppm sulfur content, sometime in 2013. The decision on timing and logistics would be made after discussions with terminal operators and customers, he said.

"At that point, they are basically the same product. The key thing is to give plenty of advance notice," to ensure a smooth transition, he said. "Unfortunately, we don't have one uniform specification for the whole region, but people will be able to make adjustments."

Unlike with the introduction of new formulations of gasoline in the early 1990s, which were ordered by the federal Environmental Protection Agency, the federal government doesn't set sulfur levels for heating oil, leaving it to the states.

-By David Bird, Dow Jones Newswires, 1-212-416-2141; david.bird@dowjones.com

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