Note 4. Inventories

The Partnership hedges substantially all of its petroleum and ethanol inventory using a variety of instruments, primarily exchange-traded futures contracts. These futures contracts are entered into when inventory is purchased and are either designated as fair value hedges against the inventory on a specific barrel basis for inventories qualifying for fair value hedge accounting or not designated and maintained as economic hedges against certain inventory of the Partnership on a specific barrel basis. Changes in fair value of these futures contracts, as well as the offsetting change in fair value on the hedged inventory, is recognized in earnings as an increase or decrease in cost of sales. All hedged inventory designated in a fair value hedge relationship is valued using the lower of cost, as determined by specific identification, or market, as determined at the product level. All petroleum and ethanol inventory not designated in a fair value hedging relationship is carried at the lower of historical cost, on a first-in, first-out basis, or market.

Convenience store inventory and Renewable Identification Numbers (“RINs”) inventory are carried at the lower of historical cost or market.

Inventories consisted of the following (in thousands):


	June 30,		December 31,
	2016		2015
Distillates: home heating oil, diesel and kerosene	$	170,653	$	156,411
Gasoline		76,018		62,467
Gasoline blendstocks		38,145		32,542
Crude oil		119,748		102,253
Residual oil		17,622		12,895
Propane and other		851		1,469
Renewable identification numbers (RINs)		562		803
Convenience store inventory		20,395		20,112
Total	$	443,994	$	388,952

In addition to its own inventory, the Partnership has exchange agreements for petroleum products and ethanol 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 $8.0 million and $3.4 million at June 30, 2016 and December 31, 2015, respectively. Negative exchange balances are accounted for as accounts payable and amounted to $13.6 million and $12.1 million at June 30, 2016 and December 31, 2015, respectively. Exchange transactions are valued using current carrying costs.