What are Heating Oil Futures?

Heating oil futures are contracts for future delivery of heating oil. One contract equals 42,000 gallons (approximately 158,987 liters) of heating oil, and the largest number of contracts that someone who is neither a producer nor a commercial end user can hold is 7,000. End users should also consider the cost of shipping from a heating oil delivery point when figuring out the price of the contracts. Heating oil futures contracts have a life span of 18 months, and a new one comes into existence every month as an old one expires. Pricing is in US Dollars (USD) per gallon (approximately 3.8 liters), and the minimum trading price change is $0.0001 USD.

Heating oil, gasoline, and crude oil are all traded in the futures market, with the respective trade symbols of HO, RBOB, and CL. Both heating oil and gasoline are products of crude oil. Options on all three products also trade. The NYMEX, formerly the New York Mercantile Exchange, is the principal exchange for trading heating oil and gasoline in the US. London is the home for another active and competitive trading exchange for petroleum products, the Intercontinental Exchange (ICE).

Refineries are the primary source of heating oil, and they are likely to sell heating oil futures if they think the prices are high enough to assure good profits. End users, such as the companies that deliver heating oil to customers, might buy heating oil futures contracts. The traders who think heating oil prices are going to rise enter into contracts to buy the commodity, and those who think prices will go down enter into contracts to sell. Traders, whether they are buyers or sellers of heating oil futures, will neither make nor take delivery of the product. Instead, traders who were buyers will sell, and traders who were sellers will buy back contracts before they have to deal with delivery of the actual product.

Traders who think both the price and the market volatility are going to rise might choose to buy calls. Those who expect the price to rise but are worried about surprises to the downside might buy futures and buy puts. Traders who think the volatility of heating oil futures will shrink might sell both puts and calls. Puts and calls can also be used wisely by end-users and by producers to protect themselves against large and unwelcome swings in the price of heating oil futures.