The London-based United Bank of Kuwait (UBK) has launched a product that will offer investors the opportunity to benefit from wide fluctuations in oil prices during the next three years. The Oil Investment Linked Deposit, linked to the price of West Texas Intermediate crude, is being offered to both private individuals and institutions, with a minimum deposit set at $50,000. The closing date for investment is 31 January.
‘Early indications show a good interest in the product. The attractive feature is that if prices go up or down customers stand to make money,’ says UBK managing director of customer services Fuad al-Shehab. The product is structured so investors will benefit from price movements beyond a 15 per cent range above or below the price fixed at the start of each of three years of the product’s life. The range is equivalent to a price variation of about $1.75 a barrel either side of present WTI crude prices. According to UBK research, such fluctuations have been common during the past 15 years.
‘The product is structured as a strangle, with a put or call option on oil prices,’ says Subhi Bin Kadra, product development officer at UBK. If crude prices fall, UBK will be able to sell oil at the higher price fixed at the start of each year; if prices rise, the bank will be able to buy oil at the lower price fixed at the start of the year.
A further feature is a built in cap which will lock in gains made if the crude varies by 40 per cent above or below the fixed price at any point during each of the three years. This will ensure investors benefit even if the crude price moves back closer to the fixed price later in the year, which is guaranteed by the bank. The deposit will be held in UBK’s Grand Cayman branch.