Major Australian financial services provider Commonwealth Bank is aiming to reduce the impact of fluctuating international oil prices on business in the transport, industrial, mining and agribusiness sectors, with a new investment product that caps the base cost of diesel.
To this end the bank has introduced the Diesel Index Cap, 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 for institutional & corporate sales.
Explaining the new product Mr White said: 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 says it can offer the cap for volumes as low as 25,000 liters per month, giving a much larger base of users access to the product.