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Commonwealth Bank Diesel Index caps rising fuel prices for businesses

8 May 2006

The Commonwealth Bank is aiming to reduce the impact of fluctuating international oil prices on business in the transport, industrial, mining and agribusiness sectors, with an investment product that caps the base cost of diesel.

"Oil prices have posted fresh records in the past fortnight as risks to oil supply, in particular from Iran and Nigeria, have boosted prices. But the main reason oil prices are high is simply strong demand and we expect this to continue for the foreseeable future, in turn keeping oil prices high in Australia," said Tobin Gorey, Commonwealth Bank Commodity Analyst.

The Diesel Index Cap is a wholesale investment product enabling diesel users to hedge against changes in the price of diesel.

"In a rising oil market it’s all about being able to budget and manage risk with more certainty. The Index Cap will allow the purchaser to protect their profit margins when diesel prices are rising," said Brendan White, Commonwealth Bank General Manager - Institutional & Corporate Sales.

According to Mr White, diesel pricing is dependent on the international diesel index plus transportation costs, distribution costs, taxes and wholesale retail margins.

"Investors pay a premium to cap the diesel index at a given level for the month. If the average index is higher than the cap level for a month, the Bank pays the investor the difference."

"On the flipside, if the diesel index falls below the cap, no payment will be made by the Bank, however, the investor will benefit from lower fuel costs."

The Commonwealth Bank can offer the cap for volumes as low as 25,000 litres per month, giving a much larger base of users access to the product.

"The reduction in minimum volume allows a much larger number of businesses access to this type of product which would have previously been out of reach, such as small business operators," said Mr White.

"Businesses are always looking to manage risk, and right now one of the risks is rising oil price costs. The Bank is now providing businesses with the opportunity to better manage this risk".

Editors Notes:

How Diesel Index Cap works:

  • Investors can apply for the Diesel Index Cap;
  • Applicants nominate diesel requirements over a six month period from July to December 2006;
  • The minimum quantity applicants can hedge per month is 25,000 litres in 1,000 litre increments;
  • All applications must be received between 12 May and 12 June 2006;
  • 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 a sufficient total volume of diesel to be hedged is not met, no premium will be collected and any premium you have already paid will be refunded
  • The investor pays the premium for the Diesel;
  • If the Diesel Index is higher than the strike price, the Bank will pay you the difference;
  • If the Diesel Index is lower than the strike price, no payment is made;
  • At the end of the six month term, the Bank pays the investor any difference payments accumulated for each month

Applications for the Diesel Price Index open from 12 May 2006 and close on 12 June 2006. For more information or an application form contact the Commonwealth Bank on 1800 627 795 or email: dieselhedging@cba.com.au

ENDS

For more information contact:

Steve Batten
Media Adviser
Commonwealth Bank
Phone: (02) 9378 2504
Mob: 0411 080 268

Email: steve.batten@cba.com.au

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