Note 3. 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 net realizable value, 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 net realizable value.

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

Inventories consisted of the following (in thousands):


	March 31,		December 31,
	2017		2016
Distillates: home heating oil, diesel and kerosene	$	157,037	$	180,272
Gasoline		70,093		101,368
Gasoline blendstocks		49,276		54,582
Crude oil		121,577		136,113
Residual oil		18,319		29,536
Propane and other		976		3,167
Renewable identification numbers (RINs)		640		631
Convenience store inventory		16,034		16,209
Total	$	433,952	$	521,878

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 $3.5 million and $4.0 million at March 31, 2017 and December 31, 2016, respectively. Negative exchange balances are accounted for as accounts payable and amounted to $7.4 million and $13.4 million at March 31, 2017 and December 31, 2016, respectively. Exchange transactions are valued using current carrying costs.