* Ultra-low sulfur diesel specification takes effect in May
* CME aims to attract more traders to its ULSD contract
NEW YORK Jan 15 (Reuters) - CME Group said on Tuesday that the new specification of its heating oil contract, which takes effect from May, will contain no renewable fuel or biodiesel, matching the grade of ultra-low sulfur diesel (ULSD) carried on the Colonial Pipeline to the Northeast.
The heating oil contract specification is switching to lower sulfur diesel to reflect changes in environmental requirements in New York and the surrounding states for diesel and heating fuels.
While heating oil burned in homes in New York City must be blended with at least 2 percent biodiesel as of last October, by choosing a contract specification that does not include renewable fuels, CME Group hopes it will be easier to attract a larger number of traders, including those in Europe.
"Because the ULSD contract will have no renewable content, it will serve as a dual-use contract for both Northeast heating oil and the on-road diesel market in the United States," CME spokesman Damon Leavell said in an email.
"The new specs will also more closely match diesel specifications in international markets, including the European ULSD market."
CME Group's heating oil contract competes with IntercontinentalExchange Inc's higher sulfur gas oil contract in London.
While ICE has also offered low sulfur gas oil futures, swaps and options contracts since 2011, they are not yet as heavily traded as the higher-sulfur gas oil benchmark.
The CME decided last year to change the specification of its benchmark heating oil contract to ULSD as of May 2013, rather than attempting to launch a new contract.
The Colonial Pipeline, which brings oil products from refineries on the U.S. Gulf Coast to the Northeast, carries three grades of ULSD.
The grade without biodiesel or renewables is known as "Grade 62". Grades 61 and 63 contain up to 5 percent renewable diesel, according to an email from Colonial dated Dec. 21.
"The revised grade and quality specifications of the HO (Heating Oil) contract will require delivery of ULSD with no renewable fuel or biodiesel content, meeting specifications of the Colonial Pipeline's Fungible Grade 62 for ULSD, beginning with the May 2013 contract month and beyond," CME said.