Commonwealth Bank follows up success with second diesel index cap
15 November 2006
Following the success of its original Diesel Index Cap, the Commonwealth Bank today launched its second Diesel Index Cap release which aims to minimise the impact of fluctuating international oil prices on business in high diesel reliant sectors.
"Although oil prices have dropped in recent times, there is still a large level of uncertainty in the international market and a risk that oil may return to higher levels," said Tobin Gorey, Commonwealth Bank Commodities Economist
"This is due to geopolitical events in the Middle East, continued political instability in other key oil producing regions, increased global demand and OPEC cutting production. In fact following a price decline of over 20 per cent in recent months, this is a very good opportunity to consider some forward oil price protection to guard against potential higher prices in future," added Mr Gorey.
Diesel Index Cap II will be available to smaller companies, with a lower volume of just 25,000 litres per month. The usual volume to cap fuel costs is 800,000 litres per month.
"Our first release of the Diesel Index Cap proved highly successful and our customers are calling for more, so we’ve responded with this latest release," said Brendan White, Commonwealth Bank General Manager - Institutional & Corporate Sales.
"Operating identically to the first release, Diesel Index Cap II is a very effective way for businesses to manage their risk in a volatile oil market and provides certainty to business input costs, offering protection through a maximum price cap.
"If the average index is higher than the cap level for a month, the Bank pays the investor the difference. If prices drop below the cap level, the business benefits from the lower price."
Diesel Index Cap II opens today and closes on 11 December 2006.
How Diesel Index Cap works:
- Investors can apply for the Diesel Index Cap;
- Applicants nominate diesel requirements over a six month period from 1 January 2007 to 30 June 2007;
- The minimum quantity applicants can hedge per month is 25,000 litres, and in 1,000 litre increments thereafter;
- All applications must be received between 13 November and 11 December 2006, trade set date is 14 December;
- 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 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;
- Payments are made monthly.
Applications for the Diesel Price Index open from 15 November 2006 and close on 11 December 2006. For more information or an application form contact the Commonwealth Bank on 1800 627 795 or email: firstname.lastname@example.org
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