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. In addition, the Company entered into Inventory Intermediation Agreements commencing in July 2013 that contain purchase obligations for certain volumes of intermediates and refined products. The Company was also party to an agreement that contained purchase obligations for certain volumes of stored intermediates inventory during the year ended December 31, 2012, which was terminated during the first quarter of 2012. The purchase obligations related to crude oil, feedstocks, intermediates and refined products under these agreements 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 refined products in the future. The level of activity for these derivatives is based on the level of operating inventories.

As of December 31, 2013, there were 838,829 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. As of December 31, 2013, there were 3,274,047 barrels of intermediates and refined products (no 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 December 31, 2013, there were 43,199,000 barrels of crude oil and no 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 December 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:
December 31, 2013:
Derivatives included with inventory supply arrangement obligations	Accrued expenses	$	(177	)
Derivatives included with the inventory intermediation agreement obligations	Accrued expenses	$	6,016
December 31, 2012:
Derivatives included with inventory supply arrangement obligations	Accrued expenses	$	5,595
Derivatives included with the inventory intermediation agreement obligations	Accrued expenses	$	—

Derivatives not designated as hedging instruments:
December 31, 2013:
Commodity contracts	Accrued expenses	$	(19,421	)
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 and inventory intermediation agreement obligations against the liabilities related to inventory supply arrangements and inventory intermediation agreements 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 year ended December 31, 2013:
Derivatives included with inventory supply arrangement obligations	Cost of sales	$	(5,773	)
Derivatives included with the inventory intermediation agreement obligations	Cost of sales	$	6,016
For the year ended December 31, 2012:
Derivatives included with inventory supply arrangement obligations	Cost of sales	$	7,060
For the year ended December 31, 2011
Derivatives included with inventory supply arrangement obligations	Cost of sales	$	(6,076	)

Derivatives not designated as hedging instruments:
For the year ended December 31, 2013:
Derivatives included with inventory supply arrangement obligations	Cost of sales	$	—
Commodity contracts	Cost of sales	$	(88,962	)
For the year ended December 31, 2012:
Derivatives included with inventory supply arrangement obligations	Cost of sales	$	(8	)
Commodity contracts	Cost of sales	$	34,778
For the year ended December 31, 2011
Derivatives included with inventory supply arrangement obligations	Cost of sales	$	2,829
Commodity contracts	Cost of sales	$	5,604

Hedged items designated in fair value hedges:
For the year ended December 31, 2013:
Crude oil and feedstock inventory	Cost of sales	$	(1,491	)
Intermediate and refined product inventory	Cost of sales	$	(6,016	)
For the year ended December 31, 2012:
Crude oil and feedstock inventory	Cost of sales	$	(4,704	)
For the year ended December 31, 2011
Crude oil and feedstock inventory	Cost of sales	$	6,558

Ineffectiveness related to the Company's fair value hedges resulted in a loss of $7,264 and gains of $2,356 and $482 for the years ended December 31, 2013, 2012 and 2011, respectively, recorded in cost of sales. Gains and losses due to ineffectiveness, resulting from the difference in the forward and spot rates of the underlying crude inventory related to the derivatives included with inventory supply arrangement obligations, were excluded from the assessment of hedge effectiveness.