Derivative Financial Instruments

12 Months Ended

Dec. 31, 2024

Derivative Financial Instruments

Derivative Financial Instruments

Note 10. Derivative Financial Instruments

The following table summarizes the notional values related to the Partnership’s derivative instruments outstanding at December 31, 2024:

	Units (1)		Unit of Measure
Exchange-Traded Derivatives
Long		42,771	Thousands of barrels
Short		(45,798)	Thousands of barrels
OTC Derivatives (Petroleum/Ethanol)
Long		140,896	Thousands of barrels
Short		(7,348)	Thousands of barrels

(1) Number of open positions and gross notional values do not measure the Partnership’s risk of loss, quantify risk or represent assets or liabilities of the Partnership, but rather indicate the relative size of the derivative instruments and are used in the calculation of the amounts to be exchanged between counterparties upon settlements.

Derivatives Accounted for as Hedges

Fair Value Hedges

The Partnership’s fair value hedges include exchange-traded futures contracts and OTC derivative contracts that are hedges against inventory with specific futures contracts matched to specific barrels. The change in fair value of these futures contracts and the change in fair value of the underlying inventory generally provide an offset to each other in the consolidated statements of operations.

The following table presents the gains and losses from the Partnership’s derivative instruments involved in fair value hedging relationships recognized in the consolidated statements of operations for the years ended December 31 (in thousands):

	Location of Gain (Loss)
	Recognized in Income on
	Derivatives	2024		2023		2022
Derivatives in fair value hedging relationship
Exchange-traded futures contracts and OTC derivative contracts for petroleum commodity products	Cost of sales	$	12,790	$	7,158	$	(32,088)
Hedged items in fair value hedge relationship
Physical inventory	Cost of sales	$	(16,985)	$	(15,320)	$	24,737

Derivatives Not Accounted for as Hedges

The following table presents the gains and losses from the Partnership’s derivative instruments not involved in a hedging relationship recognized in the consolidated statements of operations for the years ended December 31 (in thousands):

	Location of Gain (Loss)
Derivatives not designated as	Recognized in
hedging instruments	Income on Derivatives	2024		2023		2022
Commodity contracts	Cost of sales	$	(13,740)	$	1,803	$	29,002

The Partnership’s commodity contracts and other derivative activity include: (i) exchange-traded derivative contracts that are hedges against inventory and either do not qualify for hedge accounting or are not designated in a hedge accounting relationship, (ii) undelivered physical forward contracts, (iii) exchange-traded derivative contracts used to economically hedge physical forward contracts, (iv) financial forward and OTC swap agreements used to economically hedge physical forward contracts and (v) the derivative instruments under the Partnership’s controlled trading program.

The following table presents the fair value of each classification of the Partnership’s derivative instruments and its location in the consolidated balance sheets at December 31, 2024 and 2023 (in thousands):

		December 31, 2024
		Derivatives		Derivatives Not
		Designated as		Designated as
		Hedging		Hedging
	Balance Sheet Location	Instruments		Instruments		Total
Asset Derivatives:
Exchange-traded derivative contracts	Broker margin deposits	$	(9,355)	$	38,483	$	29,128
Forward derivative contracts (1)	Derivative assets		—		13,710		13,710
Total asset derivatives		$	(9,355)	$	52,193	$	42,838
Liability Derivatives:
Exchange-traded derivative contracts	Broker margin deposits	$	—	$	(30,936)	$	(30,936)
Forward derivative contracts (1)	Derivative liabilities		—		(6,105)		(6,105)
Total liability derivatives		$	—	$	(37,041)	$	(37,041)

		December 31, 2023
		Derivatives		Derivatives Not
		Designated as		Designated as
		Hedging		Hedging
	Balance Sheet Location	Instruments		Instruments		Total
Asset Derivatives:
Exchange-traded derivative contracts	Broker margin deposits	$	—	$	67,430	$	67,430
Forward derivative contracts (1)	Derivative assets		—		17,656		17,656
Total asset derivatives		$	—	$	85,086	$	85,086
Liability Derivatives:
Exchange-traded derivative contracts	Broker margin deposits	$	10,678	$	(44,687)	$	(34,009)
Forward derivative contracts (1)	Derivative liabilities		—		(4,987)		(4,987)
Total liability derivatives		$	10,678	$	(49,674)	$	(38,996)

(1) Forward derivative contracts include the Partnership’s petroleum and ethanol physical and financial forwards and OTC swaps.

Credit Risk

The Partnership’s derivative financial instruments do not contain credit risk related to other contingent features that could cause accelerated payments when these financial instruments are in net liability positions.

The Partnership is exposed to credit loss in the event of nonperformance by counterparties to the Partnership’s exchange-traded and OTC derivative contracts, but the Partnership has no current reason to expect any material nonperformance by any of these counterparties. Exchange-traded derivative contracts, the primary derivative instrument utilized by the Partnership, are traded on regulated exchanges, greatly reducing potential credit risks. The Partnership utilizes major financial institutions as its clearing brokers for all New York Mercantile Exchange (“NYMEX”), Chicago Mercantile Exchange (“CME”) and Intercontinental Exchange (“ICE”) derivative transactions and the right of offset exists with these financial institutions under master netting agreements. Accordingly, the fair value of the Partnership’s exchange-traded derivative instruments is presented on a net basis in the consolidated balance sheets. Exposure on OTC derivatives is limited to the amount of the recorded fair value as of the balance sheet dates.