Derivatives operator CME Group announced last week that it will implement new settlement procedures for all energy products on the New York Mercantile Exchange starting today (6/1).

In a news release, the Chicago-based CME said the new changes will bring settlement prices for NYMEX West Texas Intermediate crude oil, natural gas, heating oil and RBOB futures contracts in harmony with all the other CME exchanges.

Under the new settlement procedures, the first six contract months in these products will be settled by exchange staff based solely upon CME Globex activity during the closing period, from 2:28:00 to 2:30:00 PM ET.

Currently, the staff calculates NYMEX settlement prices based on more than 95 percent of electronic trades and just a few floor trades during those two final minutes of the regular session, according to a CME executive.

CME said its staff will settle the front month contract at the volume weighted average price, or VWAP, of the outright trades executed on CME Globex during the close, rounded to the nearest tradable tick.

The second contract month will be settled to the price implied from the VWAP of the front month-to-second month spreads that are traded on CME Globex during the close, using the front month settlement as the anchor price.

The third through sixth contract months will be settled in chronological order based on prices implied from the VWAPs of the one-month (e.g. July/August) and two-month (e.g. June/August) spreads that are traded on CME Globex during the close provided that certain volume thresholds are met.

Additionally, a weighting factor will be employed such that an 85 percent weighting factor is given to the price implied from the one-month spread and a 15 percent weighting factor is given to the price implied from the two-month spread.