The futures market for diesel is robust and liquid. Similar to crude oil’s WTI futures contract, New York Harbor ULSD futures contract (Code: HO) at CME Group, which trades 23 hours a day, six days per week. CME Group also offers a smaller contract, Micro New York Harbor ULSD futures (Code: MHO) with the same liquidity and market access, but 1/10 of the size.

While ULSD prices correlate with crude oil, the diesel market has several unique characteristics that create additional volatility and unique opportunities for ULSD futures traders. Here are three things to know about trading ULSD futures.

Contract Title CME Globex/ CME ClearPort Code Contract Unit Price Example Example Notional Value
NY Harbor ULSD futures HO 42,000 gallons $2.2625 $95,025
Micro NY Harbor ULSD futures MHO 4,200 gallons $2.2625 $9,503

1. Winter seasonality

While diesel is primarily consumed for on-road transportation, it is also a heating fuel used in furnaces or indirectly for power generation. Demand for diesel, also referred to as distillate, increases in the winter months and will vary within the winter months in part based on deviations in temperature. Extreme cold can drive temporary spikes in diesel demand, either as a baseload heating fuel or as a replacement fuel for natural gas or LPG, which may be less affordable at such times. This extra demand - or the expectation of it - can place upward pressure on ULSD futures prices.

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Example: In mid-December, a trader notes that the 10-day weather forecast for the Northeast is extremely cold, with temperatures in Boston expected to fall below 20 degrees Fahrenheit for three days in a row. He checks the charts and sees that the MHOF5 contract has already been trending higher since the cold forecast emerged and appears technically overbought. With the next forecast update, the trader sees the cold is moderating and decides to sell MHOF5, with a target to exit the trade at the five-day moving average eight cents lower.

  Price per gallon Notional
Sell 2 MHO 2.4195 $20,323.80
Buy 2 MHO 2.3395 $19,651.80
Profit 0.08 $672.00

Based on the current environment, the trader posts $1,220 in margin for the first trade and is able to exit the trade the next day for the expected five cents per gallon profit, or $672.

2. Economic activity

The price of both oil and refined products respond to changes in expectations around economic growth. When the economy is strong, oil demand will be higher; when the economy slows, oil demand will slow as well. However, it’s not really oil that is shifting with economic growth: it’s actually diesel demand. Diesel powers global economic activity, with diesel engines fueling trucking, trains, agriculture, mining. All else equal, bullish economic news is bullish for diesel demand. 

Example: A trader notes that oil and equity markets have been trending higher, buoyed by strong economic growth data. The trader continues to watch economic data and notes signs of weakness in manufacturing reports, as well as slowing diesel demand in the EIA’s Weekly Petroleum Status report and becomes confident in a global slowdown. He sells one MHO futures contract and holds his position until the jobs report the following Friday, where he sees his thesis confirmed via another round of weak data and ULSD futures make a sharp move lower.

Trade Price per gallon Notional
Sell 1 MHO 2.5155 $10,565.10
Buy 1 MHO 2.4150 $10,143.00
  0.1005 $422.10

He is able to exit the trade making just over 10 cents per gallon on the trade, or $422.10.

3. Correlated technicals

In the long term, ULSD prices have a high correlation with RBOB and WTI futures. However, in the short term, they will be impacted by their own unique sets of buyers and sellers. This can lead to different technical set-ups for ULSD than RBOB and/or WTI, which can create further asymmetry in buying and selling patterns and an opportunity for a trade.

Example: A trader is watching RBOB, ULSD and WTI futures and notes that both RBOB and WTI have just broken higher through a key support, while ULSD has not. The trader believes that the additional buying will also drive ULSD higher, pushing it through resistance, driving a fresh wave of buying. He buys three Micro ULSD futures at 2.295 and sets a limit order to sell it back 15 cents higher.

Trade Price per gallon Notional
Buy 3 MHO 2.295 $28,917.00
Sell 3 MHO 2.445 $30,807.00
Profit 0.15 $1,890.00

Based on the current environment, the trader posts $1,620 in margin for the first trade and is able to exit the trade the next day for the expected 15 cents per gallon profit, or $1,890.

Diesel has its own set of fundamental patterns that distinguish it from crude oil and create differences in price behavior. New York Harbor ULSD futures at CME Group are a highly liquid instrument traders can rely on to capture opportunities arising from the unique dynamics in the global diesel market.


All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

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