his article examines intra-market spreads in No. 2 heating oil futures and presents T evidence of an anomaly that is potentially profitable. The No. 2 heating oil contract, introduced in late 1978, is traded on the New York Mercantile Exchange (NYMEX). The purpose of this article is to detail the seasonal behavior of heating oil futures spreads and to offer an explanation for the observed spread anomaly.
I. DATA
Heating oil and other petroleum futures contracts are traded for delivery in all months of the year, a fact that allows the construction of monthly time series. These contracts have a delivery procedure that is unique among commodity futures. Trade in a maturing contract ceases on the last business day of that contract's delivery or spot month. The process of matching short with long contract holders who want to make or take delivery commences on the first business day of the next month. Actual deliveries must be made between the fifth business day and the last business day of that month.' Deliveries occur after the contract ceases trading and the relevant settlement price is established on the final trading day of spot month.
Futures settlement prices observed on the last trading day of the month were used to construct various spreads.