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Price Risk Management Activities | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
PRICE RISK MANAGEMENT ACTIVITIES | 14. PRICE RISK MANAGEMENT ACTIVITIES General We are exposed to market risks primarily related to the volatility in the price of commodities, foreign currency exchange rates, and the price of credits needed to comply with various government and regulatory programs. We enter into derivative instruments to manage some of these risks, including derivative instruments related to the various commodities we purchase or produce, and foreign currency exchange and purchase contracts, as described below under “Risk Management Activities by Type of Risk.” These derivative instruments are recorded as either assets or liabilities measured at their fair values (see Note 13), as summarized below under “Fair Values of Derivative Instruments.” The effect of these derivative instruments on our income and other comprehensive income (loss) is summarized below under “Effect of Derivative Instruments on Income and Other Comprehensive Income (Loss).” Risk Management Activities by Type of Risk Commodity Price Risk We are exposed to market risks related to the volatility in the price of feedstocks (primarily crude oil and corn), the products we produce (primarily refined petroleum products), and natural gas used in our operations. To reduce the impact of price volatility on our results of operations and cash flows, we use commodity derivative instruments, such as futures and options. Our positions in commodity derivative instruments are monitored and managed on a daily basis by our risk control group to ensure compliance with our stated risk management policy that has been approved by our board of directors. We primarily use commodity derivative instruments as cash flow hedges and economic hedges. Our objectives for entering into each type of hedge is described below. •Cash flow hedges – The objective of our cash flow hedges is to lock in the price of forecasted purchases and/or product sales at existing market prices that we deem favorable. •Economic hedges – Our objectives for holding economic hedges are to (i) manage price volatility in certain feedstock and product inventories and (ii) lock in the price of forecasted purchases and/or product sales at existing market prices that we deem favorable. As of September 30, 2021, we had the following outstanding commodity derivative instruments that were used as cash flow hedges and economic hedges, as well as commodity derivative instruments related to the physical purchase of corn at a fixed price. The information presents the notional volume of outstanding contracts by type of instrument and year of maturity (volumes in thousands of barrels, except corn contracts that are presented in thousands of bushels).
|  | Notional Contract Volumes by Year of Maturity
|  | 2021 |  | 2022 |  |
Derivatives designated as cash flow hedges: |  |  |  |  |  |
Refined petroleum products: |  |  |  |  |  |
Futures – long |  | 1,162 |  |  | 501 |  |  |
Futures – short |  | 3,400 |  |  | 501 |  |  |
Derivatives designated as economic hedges: |  |  |  |  |  |
Crude oil and refined petroleum products: |  |  |  |  |  |
Futures – long |  | 63,320 |  |  | 1,354 |  |  |
Futures – short |  | 61,498 |  |  | 1,173 |  |  |
Corn: |  |  |  |  |  |
Futures – long |  | 85,540 |  |  | 1,615 |  |  |
Futures – short |  | 103,295 |  |  | 6,395 |  |  |
Physical contracts – long |  | 16,441 |  |  | 4,792 |  |  |
Foreign Currency Risk We are exposed to exchange rate fluctuations on transactions related to our international operations that are denominated in currencies other than the local (functional) currencies of our operations. To manage our exposure to these exchange rate fluctuations, we use foreign currency contracts. These contracts are not designated as hedging instruments for accounting purposes and therefore are classified as economic hedges. As of September 30, 2021, we had foreign currency contracts to purchase $463 million of U.S. dollars and $1.1 billion of U.S. dollar equivalent Canadian dollars. Of these commitments, $425 million matured on or before October 25, 2021 and the remaining $1.138 billion will mature by December 6, 2021. Environmental Compliance Program Price Risk We are exposed to market risk related to the volatility in the price of credits needed to comply with various governmental and regulatory environmental compliance programs. To manage this risk, we enter into contracts to purchase these credits as appropriate. Some of these contracts are derivative instruments; however, we elect the normal purchase exception and do not record these contracts at their fair values. Certain of these programs, such as the biofuels programs described in Note 13, require us to blend biofuels into the products we produce, and we are subject to such programs in most of the countries in which we operate. These countries, or local governments thereof, set annual quotas for the percentage of biofuels that must be blended into the motor fuels consumed in their jurisdictions. As a producer of motor fuels from petroleum, we are obligated to blend biofuels into the products we produce at a rate that is at least equal to the applicable quota. To the degree we are unable to blend at the applicable rate, we must purchase biofuel credits (primarily RINs in the U.S.). We are exposed to the volatility in the market price of these credits, and we manage that risk by purchasing biofuel credits as appropriate. The cost of meeting our credit obligations under the biofuels programs was $618 million and $143 million for the three months ended September 30, 2021 and 2020, respectively, and $1.6 billion and $391 million for the nine months ended September 30, 2021 and 2020, respectively. These amounts are reflected in cost of materials and other. We are subject to additional requirements under the other environmental emissions programs as discussed in Note 13. Under these other environmental emissions programs, we purchase various emission credits to comply with these programs. Therefore, we are exposed to the volatility in the market price of these credits. The cost of the various credits under the other environmental emissions programs are significant; however, we recovered substantially all of these costs from our customers for the three and nine months ended September 30, 2021 and 2020 and expect to continue to recover the majority of these costs in the future. For the three and nine months ended September 30, 2021 and 2020, the net cost of meeting our credit obligations under these other environmental emissions programs was immaterial. Fair Values of Derivative Instruments The following tables provide information about the fair values of our derivative instruments as of September 30, 2021 and December 31, 2020 (in millions) and the line items in the balance sheets in which the fair values are reflected. See Note 13 for additional information related to the fair values of our derivative instruments. As indicated in Note 13, we net fair value amounts recognized for multiple similar derivative contracts executed with the same counterparty under master netting arrangements, including cash collateral assets and obligations. The following table, however, is presented on a gross asset and gross liability basis, which results in the reflection of certain assets in liability accounts and certain liabilities in asset accounts:
| Balance Sheet Location |  | September 30, 2021 |  | December 31, 2020
|  | Asset Derivatives |  | Liability Derivatives |  | Asset Derivatives |  | Liability Derivatives
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |
Commodity contracts | Receivables, net |  | $ | 18 |  |  | $ | 41 |  |  | $ | 4 |  |  | $ | 17 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |
Commodity contracts | Receivables, net |  | $ | 767 |  |  | $ | 695 |  |  | $ | 399 |  |  | $ | 388 |
Physical purchase contracts | Inventories |  | 6 |  |  | 5 |  |  | 13 |  |  | — |
Foreign currency contracts | Receivables, net |  | 4 |  |  | — |  |  | — |  |  | — |
Foreign currency contracts | Accrued expenses |  | — |  |  | 5 |  |  | — |  |  | 4 |
Total |  |  | $ | 777 |  |  | $ | 705 |  |  | $ | 412 |  |  | $ | 392 |
Market Risk Our price risk management activities involve the receipt or payment of fixed price commitments into the future. These transactions give rise to market risk, which is the risk that future changes in market conditions may make an instrument less valuable. We closely monitor and manage our exposure to market risk on a daily basis in accordance with policies approved by our board of directors. Market risks are monitored by our risk control group to ensure compliance with our stated risk management policy. We do not require any collateral or other security to support derivative instruments into which we enter. We also do not have any derivative instruments that require us to maintain a minimum investment-grade credit rating. Effect of Derivative Instruments on Income and Other Comprehensive Income (Loss) The following table provides information about the gain (loss) recognized in income and other comprehensive income (loss) due to fair value adjustments of our cash flow hedges (in millions):
Derivatives in Cash Flow Hedging Relationships |  | Location of Gain (Loss) Recognized in Income on Derivatives |  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
2021 |  | 2020 | 2021 |  | 2020 |  |
Commodity contracts: |  |  |  |  |  |  |  |  |  |  |  |
Gain (loss) recognized in other comprehensive income (loss) on derivatives |  | n/a |  | $ | (21) |  |  | $ | 2 |  |  | $ | (52) |  |  | $ | 52 |  |  |
Gain (loss) reclassified from accumulated other comprehensive loss into income |  | Revenues |  | (3) |  |  | (3) |  |  | (37) |  |  | 42 |  |  |
For cash flow hedges, no component of any derivative instrument’s gains or losses was excluded from the assessment of hedge effectiveness for the three and nine months ended September 30, 2021 and 2020. For the three and nine months ended September 30, 2021 and 2020, cash flow hedges primarily related to forward sales of renewable diesel. The estimated deferred after-tax loss that is expected to be reclassified into revenues over the next 12 months as a result of the hedged transactions that are forecasted to occur as of September 30, 2021 was immaterial. For the three and nine months ended September 30, 2021 and 2020, there were no amounts reclassified from accumulated other comprehensive loss into income as a result of the discontinuance of cash flow hedge accounting. The changes in accumulated other comprehensive loss by component, net of tax, for the three and nine months ended September 30, 2021 and 2020 are described in Note 6. The following table provides information about the gain (loss) recognized in income on our derivative instruments with respect to our economic hedges and our foreign currency hedges and the line items in the statements of income in which such gains (losses) are reflected (in millions):
Derivatives Not Designated as Hedging Instruments |  | Location of Gain (Loss) Recognized in Income on Derivatives |  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
2021 |  | 2020 | 2021 |  | 2020 |  |
Commodity contracts |  | Revenues |  | $ | (7) |  |  | $ | (4) |  |  | $ | 13 |  |  | $ | (3) |  |  |
Commodity contracts |  | Cost of materials and other |  | 6 |  |  | 118 |  |  | (51) |  |  | 106 |  |  |
Commodity contracts |  | Operating expenses (excluding depreciation and amortization expense) |  | (1) |  |  | — |  |  | 2 |  |  | 2 |  |  |
Foreign currency contracts |  | Cost of materials and other |  | 19 |  |  | (6) |  |  | 17 |  |  | 43 |  |  |
Foreign currency contracts |  | Other income, net |  | (28) |  |  | 56 |  |  | 55 |  |  | (49) |  |  |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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