Commonwealth Bank delivers businesses fuel price certainty in record oil price climate

Transport, construction, manufacturing and agriculture industries able to set fuel costs

With world oil prices reaching record highs, the Commonwealth Bank has announced the fourth release of its highly popular Diesel Index Cap, a fuel pricing product that protects against rising diesel costs over a period of six months.

"With oil prices currently at record highs globally, the Diesel Index Cap provides our clients across a broad range of industries, including transport and storage, construction, manufacturing and agriculture with an opportunity to manage one of their key operating costs, fuel," said Brendan White, Commonwealth Bank General Manager, Institutional and Corporate Sales.

Diesel Index Cap IV enables businesses to set a maximum fuel price for the next six months, providing price protection and cash flow certainty in the budgeting process. If oil prices rise above the cap, the Bank will pay them the difference. If oil prices drop, while they won’t receive a payment from the Bank, they will still benefit from the lower oil price.

"It is a prudent risk management strategy in the current volatile and unpredictable oil market" said Mr White.

CommSec Commodity Strategist, Tobin Gorey said, "The oil market has yet again proved its ability to surprise everyone with a big, quick rise in prices.  New nominal records have been set and we're not far away from matching records for inflation-adjusted prices set in 1980".

According to Mr White, businesses with larger, more direct exposures to diesel pricing are familiar with these type of risk management solutions to create more certainty in their cost structure however many other Australian businesses face similar risks.

"The Diesel Index Cap is suitable for any businesses who directly or indirectly use volumes as low as 25,000 litres a month," added Mr White.

The Commonwealth Bank’s Diesel Index Cap has a minimum premium of $7500, and is now open for applications, and will close on 11 December 2007. The diesel price cap starts in January 2008 and matures in June 2008.

How Diesel Index Cap works:

• Corporate and business clients who are classified wholesale clients can apply for the Diesel Index Cap;
• Applicants nominate diesel volume requirements they wish to protect over a six month period from January 2008 to June 2008;
• The minimum quantity applicants can hedge per month is 25,000 litres, and in 1,000 litre increments thereafter;
• All applications must be received by 11 December 2007;
• If the Bank determines that the total volume of diesel to be hedged is sufficient applications will be accepted and the deal will proceed;
• If the deal does not go ahead, no premium will be collected and any premium you have already paid will be refunded;
• The applicant pays the premium for the Diesel Index Cap protection
• If the Diesel Index is higher than the cap level the Bank will pay you the difference;
• If the Diesel Index is lower than the cap level no payment is made;
• Settlements are made monthly.

For more information or an application form contact the Commonwealth Bank on 1800 627 795 or email: dieselhedging@cba.com.au

 

• The dark line represents the Commonwealth Bank Diesel Index for January to June 2007. The Cap Level represents the Diesel Index Cap. If the average Diesel Index for a month is higher than the Cap Level then the bank will pay the difference between the Diesel Index and the Cap Level times the volume contracted (represented by the shaded area). This largely offsets the increased cost of physical fuel purchases. If the average Diesel Index for the month is lower than the Cap Level then then no payment is made to the client but the client is able to benefit by buying physical fuel at lower prices.

ENDS

For more information, media contact:

Steve Batten
Commonwealth Bank
Phone: (02) 9378 2504
Email: steve.batten@cba.com.au