The New York Mercantile Exchange's request to trade futures contracts in residual fuel oil was approved this week by federal regulators.
The Commodity Futures Trading Commission, which oversees the futures markets, approved the request unanimously at an open meeting Tuesday in Washington.Residual fuel oil is a heavy fuel oil produced from the residue left over after crude oil is refined.
Refiners in Texas are the largest producers of residual fuel oil in the United States, according to the CFTC.
Residual fuel oil with a sulfur content of 1 percent or less, the kind on which NYMEX contracts will be based, is used primarily for generating electricity. Residual fuel oil with a high sulfur content is used to fuel water-borne vessels such as tankers and barges.
NYMEX's board hasn't decided yet when to begin trading in the new contract, said a spokeswoman who asked not to be identified.
Futures contracts are agreements to deliver a quantity of goods, like fuel oil or soybeans, at a specified price at a specified time in the future. Most futures traders never take or make delivery. They usually close out their positions before the delivery date.
Actual delivery of the residual fuel oil would be limited to an area of the Texas Gulf Coast from Lynchburg along the Houston Ship Channel, including Deer Park, Galena Park and Pasadena, Texas.
Florida Power & Light purchases about half of the 1 percent residual fuel oil produced along the Gulf Coast, said the CFTC. The rest goes to other utilities and industrial users in the area.
The planned futures contract calls for delivery of 1,000 barrels of residual fuel oil.
Futures prices would be quoted in dollars and cents per barrel, with a minimum price fluctuation of one cent and a proposed daily maximum fluctuation of $1 per barrel - $1,000 per contract - with a provision for expanding the limit to $2 per barrel.
NYMEX first sought CFTC approval for residual fuel oil futures in March. The exchange, based in the World Trade Center in lower Manhattan, already lists futures contracts in crude oil, gasoline, heating oil, gold, platinum and other commodities.
CFTC officials noted that the latest futures contract is a logical progression from existing ones.
"It seems like this contract is a natural," said Commissioner Kalo A. Hineman. "It completes the chain."