Inventories

Alon’s inventories are stated at the lower of cost or market. Cost is determined under the last-in, first-out (LIFO) method for crude oil, refined products, asphalt, and blendstock inventories. Materials and supplies are stated at average cost. Cost for convenience store merchandise inventories is determined under the retail inventory method and cost for convenience store fuel inventories is determined under the first-in, first-out (FIFO) method.

Carrying value of inventories consisted of the following:



	June 30, 2011		December 31, 2010
Crude oil, refined products, asphalt and blendstocks	$	174,650	$	60,588
Crude oil inventory consigned to others	60,338		38,445
Materials and supplies	22,127		19,059
Store merchandise	19,265		17,237
Store fuel	7,228		5,721
Total inventories	$	283,608	$	141,050

Crude oil, refined products, asphalt and blendstock inventories totaled 3,233 thousand barrels and 2,441 thousand barrels as of June 30, 2011 and December 31, 2010, respectively. A reduction of inventory volumes resulted in a liquidation of LIFO inventory layers associated with refined products and asphalt carried at lower costs which prevailed in previous years. The liquidation decreased cost of sales by approximately $44,340 for the six months ended June 30, 2011. An increase in LIFO inventory associated with crude oil resulted in an increase to cost of sales of $21,372 for the six months ended June 30, 2011.

Market values of crude oil, refined products, asphalt and blendstock inventories exceeded LIFO costs by $104,565 and $115,072 at June 30, 2011 and December 31, 2010, respectively.

Crude oil inventory consigned to others represents inventory that was sold to third parties with an obligation by Alon to repurchase the inventory at the end of the respective agreements. As a result of this requirement to repurchase inventory, no revenue was recorded on these transactions and the inventory volumes remain valued under the LIFO method.

Alon had 945 thousand barrels and 674 thousand barrels of crude oil consigned to others at June 30, 2011 and December 31, 2010, respectively. Alon recorded liabilities associated with this consigned inventory of $27,034 in accounts payable and $58,099 in other non-current liabilities and $27,034 in accounts payable and $32,433 in other non-current liabilities at June 30, 2011 and December 31, 2010, respectively.

Additionally, Alon recorded accounts receivable of $1,903 and $1,073 at June 30, 2011 and December 31, 2010, respectively, for forward commitments related to month-end consignment inventory target levels differing from projected levels and the associated pricing with these inventory level differences.

Normal Purchase Normal Sale

Effective January 1, 2011, Alon elected to account for all inventory financing agreements it has under the "Normal Purchase Normal Sales" exemption of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 815, Derivatives and Hedging. This exemption applies to situations where commodities are physically delivered. In previous periods Alon recorded changes in the fair value of the estimated settlement liability of these contracts through the statement of operations. Beginning January 1, 2011 and forward, changes in fair value of the estimated settlement liability will no longer be recorded due to the Normal Purchase Normal Sale exemption. If the contracts were settled June 30, 2011, the payment would be in excess of the liabilities recorded by $12,462.