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Commonwealth Bank delivers businesses fuel price certainty

23 May 2007

With continued volatility in world oil prices, the Commonwealth Bank is offering businesses the opportunity to lock in fuel pricing for the first six months of the new financial year with a new release of its highly popular Diesel Index Cap.

"As Australian businesses look to get the new financial year off to a sound start, the ability to identify and maintain a stable set of operating costs is definitely a bonus," said Brendan White, Commonwealth Bank General Manager - Institutional & Corporate Sales.

"Oil prices are often one variable that businesses find difficult to predict, and one that has the potential in a very volatile environment to increase suddenly.

"With the Diesel Index Cap, businesses can set a maximum fuel price for the next six months, giving them the potential of a win-win situation. 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."

CommSec Commodity Strategist, Tobin Gorey said oil prices are expected to continue to fluctuate.

"Strong global economic growth is boosting crude oil demand. That means OPEC’s small cushion of spare capacity will be eaten away as we progress through 2007. With less spare capacity, oil prices will rise more quickly with disruptions in supply, and the market will take longer to recover."

The Commonwealth Bank has had great success with the first two of its Diesel Index Caps in 2006. The industries that have taken advantage of the facility are the transport and storage, construction, manufacturing and agriculture industries.

"Those with larger, more direct exposures to diesel pricing are more familiar with risk management solutions to create predictability in their costs, but many other Australian businesses face the same risks," said Mr White.

"The Diesel Index Cap is suitable for any businesses exposed to volumes as low as 25,000 litres a month. This enables smaller businesses like nurseries and local councils to take advantage of a fuel hedging strategy," 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 15 June 2007. The diesel price cap starts from 2 July 2007 and matures on 31 December 2007.

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 2 July 2007 to 31 December 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 21 May and 15 June 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 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.

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, media contact:

Steve Batten
Commonwealth Bank
Phone: (02) 9378 2504
Mob: 0411 080 268
Email: steve.batten@cba.com.au