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Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Commodity Price Risk Management

Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in crude oil and refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into derivative contracts in the form of commodity price swaps, collar contracts, forward purchase and sales and futures contracts to mitigate price exposure with respect to our inventory positions, natural gas purchases, sales prices of refined products and crude oil costs.

Foreign Currency Risk Management

We are exposed to market risk related to the volatility in foreign currency exchange rates. We periodically enter into derivative contracts in the form of foreign exchange forward contracts to mitigate the exposure associated with fluctuations on intercompany notes with our foreign subsidiaries that are not denominated in the U.S. dollar.

Accounting Hedges

We periodically have swap contracts to lock in basis spread differentials on forecasted purchases of crude oil and forward sales contracts that lock in the prices of future sales of crude oil and refined product. These contracts have been designated as accounting hedges and are measured at fair value with offsetting adjustments (gains/losses) recorded directly to other comprehensive income (loss). These fair value adjustments are later reclassified to earnings as the hedging instruments mature.

The following tables present the pre-tax effect on other comprehensive income (“OCI”) and earnings due to fair value adjustments and maturities of hedging instruments under hedge accounting:

						Net Unrealized Loss Recognized in OCI																		Gain (Loss) Reclassified into Earnings
Derivatives Designated as Cash Flow Hedging Instruments						Three Months Ended June 30,												Income Statement Location						Three Months Ended June 30,
						2024						2023												2024						2023
						(In thousands)																		(In thousands)
Commodity contracts						$	(456)					$	(271)					Sales and other revenues						$	(305)					$	271
Total						$	(456)					$	(271)											$	(305)					$	271

						Net Unrealized Loss Recognized in OCI																		Gain (Loss) Reclassified into Earnings
Derivatives Designated as Cash Flow Hedging Instruments						Six Months Ended June 30,												Income Statement Location						Six Months Ended June 30,
						2024						2023												2024						2023
						(In thousands)																		(In thousands)
Commodity contracts						$	(456)					$	—					Sales and other revenues						$	(4,592)					$	270
Total						$	(456)					$	—											$	(4,592)					$	270

Economic Hedges

We have commodity contracts, including NYMEX futures contracts, to lock in prices on forecasted inventory purchases and sales. We have basis swap contracts to mitigate exposure to natural gas price volatility. We periodically have forward purchase and sale contracts to lock in basis spread differentials on forecasted crude oil and refined products purchases. We use collar contracts to mitigate exposure to natural gas price volatility; these contracts serve as economic hedges (derivatives used for risk management but not designated as accounting hedges). We also have forward currency contracts to fix the rate of foreign currency. In addition, our precious metals catalyst financing arrangements discussed in Note 9 could require repayment under certain conditions based on the future pricing of platinum, which is an embedded derivative. These contracts are measured at fair value with offsetting adjustments (gains/losses) recorded directly to earnings.

The following table presents the pre-tax effect on income due to maturities and fair value adjustments of our economic hedges:

												Gain (Loss) Recognized in Earnings
Derivatives Not Designated as Hedging Instruments						Income Statement Location						Three Months Ended June 30,												Six Months Ended June 30,
												2024						2023						2024						2023
												(In thousands)
Commodity contracts						Cost of materials and other						$	1,538					$	13,154					$	(19,127)					$	19,902
						Operating expenses						(1,665)						3,648						(1,878)						(10,410)
						Interest expense						(3,993)						2,514						(1,230)						4,920
Foreign currency contracts						Gain (loss) on foreign currency transactions						3,540						(8,716)						13,671						(8,602)
						Total						$	(580)					$	10,600					$	(8,564)					$	5,810

As of June 30, 2024, we have the following notional contract volumes related to outstanding derivative instruments:

												Notional Contract Volumes by Year of Maturity
						Total Outstanding Notional						2024						2025																		Unit of Measure
Derivatives Designated as Hedging Instruments
Forward diesel contracts - short						125,000						125,000						—																		Barrels
Derivatives Not Designated as Hedging Instruments
NYMEX futures (WTI) - short						1,790,000						1,790,000						—																		Barrels
Forward gasoline and diesel contracts - long						150,000						150,000						—																		Barrels
Foreign currency forward contracts						385,904,193						177,833,367						208,070,826																		U.S. dollar
Forward commodity contracts (platinum)						34,628						2,047						32,581																		Troy ounces
Natural gas price swaps (basis spread) - long						2,208,000						2,208,000						—																		MMBTU

The following tables present the fair value and balance sheet locations of our outstanding derivative instruments. These amounts are presented on a gross basis with offsetting balances that reconcile to a net asset or liability position in our consolidated balance sheets. We present on a net basis to reflect the net settlement of these positions in accordance with provisions of our master netting arrangements.

						Derivatives in Net Asset Position																		Derivatives in Net Liability Position
						Gross Assets						Gross Liabilities Offset in Balance Sheet						Net Assets Recognized in Balance Sheet						Gross Liabilities						Gross Assets Offset in Balance Sheet						Net Liabilities Recognized in Balance Sheet
												(In thousands)
June 30, 2024
Derivatives designated as cash flow hedging instruments:
Commodity forward contracts						$	—					$	—					$	—					$	210					$	—					$	210
						$	—					$	—					$	—					$	210					$	—					$	210
Derivatives not designated as cash flow hedging instruments:
NYMEX futures contracts						$	—					$	—					$	—					$	4,674					$	—					$	4,674
Commodity price swap contracts						—						—						—						1,495						—						1,495
Commodity forward contracts						574						—						574						528						—						528
Foreign currency forward contracts						4,169						(908)						3,261						51						—						51
						$	4,743					$	(908)					$	3,835					$	6,748					$	—					$	6,748
Total net balance																		$	3,835																	$	6,958
Balance sheet classification:						Prepayment and other												$	3,835					Accrued liabilities												$	6,958

						Derivatives in Net Asset Position																		Derivatives in Net Liability Position
						Gross Assets						Gross Liabilities Offset in Balance Sheet						Net Assets Recognized in Balance Sheet						Gross Liabilities						Gross Assets Offset in Balance Sheet						Net Liabilities Recognized in Balance Sheet
												(In thousands)
December 31, 2023
Derivatives not designated as cash flow hedging instruments:
NYMEX futures contracts						$	836					$	—					$	836					$	—					$	—					$	—
Commodity price swap contracts						—						—						—						7,808						—						7,808
Commodity forward contracts						2,908						—						2,908						1,848						—						1,848
Foreign currency forward contracts						—						—						—						7,893						—						7,893
						$	3,744					$	—					$	3,744					$	17,549					$	—					$	17,549
Total net balance																		$	3,744																	$	17,549
Balance sheet classification:						Prepayment and other												$	3,744					Accrued liabilities												$	17,549

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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://www.xbrl.org/2003/role/disclosureRef
-Topic 815
-SubTopic 40
-Name Accounting Standards Codification
-Section 50
-Paragraph 5
-Subparagraph (f)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147480237/815-40-50-5

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 815
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 5C
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C

Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef
-Topic 815
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org/815/tableOfContent

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