DERIVATIVES

The Company uses derivative instruments to mitigate certain exposures to commodity price risk. The Company’s crude supply agreements contain purchase obligations for certain volumes of crude oil and other feedstocks. The Company was also party to an agreement that contained purchase obligations for certain volumes of stored intermediates inventory during the three months ended March 31, 2012, which was terminated during the first quarter of 2012. The purchase obligations related to crude oil and feedstocks are derivative instruments that have been designated as fair value hedges in order to hedge the commodity price volatility of certain refinery inventory. The fair value of these purchase obligation derivatives is based on market prices of crude oil and intermediates in the future. The level of activity for these derivatives is based on the level of operating inventories.

As of March 31, 2013, there were 2,194,091 barrels of crude oil and feedstocks (2,529,447 barrels at December 31, 2012) outstanding under these derivative instruments designated as fair value hedges and no barrels (no barrels at December 31, 2012) outstanding under these derivative instruments not designated as hedges. These volumes represent the notional value of the contract.

The Company also enters into economic hedges primarily consisting of commodity derivative contracts that are not designated as hedges and are used to manage price volatility in certain crude oil and feedstock inventories as well as crude oil, feedstock, and refined product sales or purchases. The objective in entering into economic hedges is consistent with the objectives discussed above for fair value hedges. As of March 31, 2013, there were 2,851,000 barrels of crude oil and 401,000 barrels of refined products (9,234,000 and 1,310,000, respectively, as of December 31, 2012), outstanding under short and long term commodity derivative contracts not designated as hedges representing the notional value of the contracts.

The following tables provide information about the fair values of these derivative instruments as of March 31, 2013 and December 31, 2012 and the line items in the consolidated balance sheet in which the fair values are reflected.



Description	Balance Sheet Location	Fair Value Asset/(Liability)
Derivatives designated as hedging instruments:
March 31, 2013:
Derivatives included with inventory supply arrangement obligations	Accrued expenses	$	(2,156	)
December 31, 2012:
Derivatives included with inventory supply arrangement obligations	Accrued expenses	$	5,595

Derivatives not designated as hedging instruments:
March 31, 2013:
Commodity contracts	Accounts receivable	$	10,970
December 31, 2012:
Commodity contracts	Accounts receivable	$	1,431

The Company’s policy is to net the fair value of the derivatives included with inventory supply arrangement obligations against the liability related to inventory supply arrangements with the same counterparty as the legal right of offset exists.

The following tables provide information about the gain or loss recognized in income on these derivative instruments and the line items in the consolidated financial statements in which such gains and losses are reflected.



Description	Location of Gain or (Loss) Recognized in Income on Derivatives	Gain or (Loss) Recognized in Income on Derivatives
Derivatives designated as hedging instruments:
For the three months ended March 31, 2013:
Derivatives included with inventory supply arrangement obligations	Cost of sales	$	(7,751	)
For the three months ended March 31, 2012:
Derivatives included with inventory supply arrangement obligations	Cost of sales	$	16,009
Derivatives not designated as hedging instruments:
For the three months ended March 31, 2013:
Derivatives included with inventory supply arrangement obligations	Cost of sales	$	—
Commodity contracts	Cost of sales	$	18,678
For the three months ended March 31, 2012:
Derivatives included with inventory supply arrangement obligations	Cost of sales	$	(8	)
Commodity contracts	Cost of sales	$	26,918
Hedged items designated in fair value hedges:
For the three months ended March 31, 2013:
Crude oil and feedstock inventory	Cost of sales	$	2,888
For the three months ended March 31, 2012:
Crude oil and feedstock inventory	Cost of sales	$	(12,739	)

Ineffectiveness related to the Company's fair value hedges resulted in a loss of $4,863 for the three months ended March 31, 2013 and gain of $3,876 for the three months ended March 31, 2012, respectively. Gains and losses due to ineffectiveness were excluded from the assessment of hedge effectiveness.