The Commonwealth Bank is to offer a diesel hedging product that guarantees a set price to Australian Local Government Authorities to enable them to reduce the impact of fluctuating international oil prices.

The Diesel Index Swap is a wholesale product that allows all Local Government Authorities (LGAs) in Australia to fix the future price of their diesel. It follows on from the bank’s successful launch of the Diesel Index Cap earlier this year, which allowed small businesses and farmers an opportunity to cap the price of their fuel.

Customers agree to fix the diesel index at a given level each month. If the average index is higher than the swap level for a month, the bank pays the customer the difference to offset the higher price. On the flipside, if the diesel index falls below the agreed rate, the customer pays the bank the difference.

Commonwealth Bank said it would be offering the service for volumes as low as 25,000 liters per month, allowing greater customer access to the product.

In a volatile oil market it’s all about being able to budget and manage risk with more certainty. The Index Swap will allow our Local Government customers to protect their profit margins and fix the future price of their diesel, said Brendan White, Commonwealth Bank Global Markets head of sales.