Inventories

6 Months Ended

Jun. 30, 2011

Inventories

Inventories

Note 4. Inventories

Except for its convenience store inventory, the Partnership hedges substantially all of its inventory purchases through futures contracts and swap agreements.  Hedges are executed when inventory is purchased and are identified with that specific inventory.  Changes in the fair value of these contracts, as well as the offsetting gain or loss on the hedged inventory item, are recognized in earnings as an increase or decrease in cost of sales.  All hedged inventory is valued using the lower of cost, as determined by specific identification, or market.  Prior to sale, hedges are removed from specific barrels of inventory, and the then unhedged inventory is sold and accounted for on a first-in, first-out basis.  In addition, the Partnership has convenience store inventory which is carried at the lower of historical cost or market.

Inventories consisted of the following (in thousands):

	June 30,  2011		December 31,  2010
Distillates: home heating oil, diesel and kerosene	$	354,018	$	377,123
Gasoline	139,570		115,542
Residual oil	32,010		35,749
Blend stock	107,461		55,919
Total	633,059		584,333
Convenience store inventory	2,650		2,498
Total	$	635,709	$	586,831

In addition to its own inventory, the Partnership has exchange agreements with unrelated third-party suppliers, whereby it may draw inventory from these other suppliers and suppliers may draw inventory from the Partnership.  Positive exchange balances are accounted for as accounts receivable and amounted to $57.6 million and $126.8 million at June 30, 2011 and December 31, 2010, respectively.  Negative exchange balances are accounted for as accounts payable and amounted to $73.5 million and $115.2 million at June 30, 2011 and December 31, 2010, respectively.  Exchange transactions are valued using current quoted market prices.