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Derivative Instruments
 12 Months Ended
Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments
We use the majority of our derivatives to reduce normal operating and market risks with the primary objective of reducing the impact of market price volatility on our results of operations. As such, our use of derivative contracts is aimed at:
•
limiting the exposure to price fluctuations of commodity inventory above or below target levels at each of our segments;
•
managing our exposure to commodity price risk associated with the purchase or sale of crude oil, feedstocks and finished grade fuel products at each of our segments;
•
managing the cost of our RINs Obligation using future commitments to purchase or sell RINs at fixed prices and quantities; and
•
limiting the exposure to interest rate fluctuations on our floating rate borrowings.
We primarily utilize commodity swaps, futures, forward contracts and options contracts, generally with maturity dates of three years or less, and from time to time interest rate swap agreements to achieve these objectives. Futures contracts are standardized agreements, traded on a futures exchange, to buy or sell the commodity at a predetermined price at a specified future date. Options provide the right, but not the obligation to buy or sell the commodity at a specified price in the future. Commodity swap and futures contracts require cash settlement for the commodity based on the difference between a fixed or floating price and the market price on the settlement date, and options require payment of an upfront premium. Because these derivatives are entered into to achieve objectives specifically related to our inventory and production risks, such gains and losses (to the extent not designated as accounting hedges and recognized on an unrealized basis in other comprehensive income) are recognized in cost of materials and other.
During the first quarter of 2018, we utilized Interest rate swap agreements to hedge floating rate debt by exchanging interest rate cash flows, based on a notional amount from a floating rate to a fixed rate. Effective with the Delek/Alon Merger, we had four interest rate swap agreements (that had maturities in March 2019) which effectively fixed the variable LIBOR interest component of the term loans within the Alon Retail Credit Agreement. The aggregate notional amount under these agreements were to cover approximately 77% of the outstanding principal of these term loans throughout the duration of the interest rate swaps. These interest rate swap agreements were terminated due to the extinguishment of the Alon Retail Credit
Agreement in connection with the Refinancing on March 30, 2018, resulting in a reclassification of unrealized loss of $0.6 million from accumulated other comprehensive income to interest expense on the consolidated statement of income for the year ended December 31, 2018 - see Note 11 for further information.
Forward contracts are agreements to buy or sell a commodity at a predetermined price at a specified future date, and for our transactions, generally require physical delivery. Forward contracts where the underlying commodity will be used or sold in the normal course of business qualify as normal purchases and normal sales pursuant to ASC 815 and are not accounted for as derivative instruments. Rather, such forward contracts are accounted for under other applicable GAAP. Forward contracts entered into for trading purposes that do not meet the normal purchases, normal sales exception are accounted for as derivative instruments at fair value with changes in fair value recognized in earnings in the period of change. For the years ended December 31, 2019 and 2018, all of our forward contracts that were accounted for as derivative instruments primarily consisted of contracts related to our Canadian crude trading operations. Since Canadian crude trading activity is not related to managing supply or pricing risk of the actual inventory that will be used in production, such unrealized and realized gains and losses are recognized in other operating income, net rather than cost of materials and other on the accompanying consolidated statements of income. There were no forward contract transactions that were accounted for as derivatives for the year ended December 31, 2017.
Futures, swaps or other commodity related derivative instruments that are utilized to specifically provide economic hedges on our Canadian forward contract or investment positions are recognized in other operating income, net because that is where the related underlying transactions are reflected.
From time to time, we also enter into future commitments to purchase or sell RINs at fixed prices and quantities, which are used to manage the costs associated with our RINs Obligation. These future RIN commitment contracts meet the definition of derivative instruments under ASC 815, and are recorded at estimated fair value in accordance with the provisions of ASC 815. Changes in the fair value of these future RIN commitment contracts are recorded in cost of materials and other on the consolidated statements of income.
At this time, we do not believe there is any material credit risk with respect to the counterparties to any of our derivative contracts.
In accordance with ASC 815, certain of our commodity swap contracts and our interest rate agreements have been designated as cash flow hedges and the change in fair value between the execution date and the end of period (or early termination date in regards to the four Alon retail interest rate swaps discussed above) has been recorded in other comprehensive income. The fair value of these contracts is recognized in income in the same financial statement line item as hedged transaction at the time the positions are closed and the hedged transactions are recognized in income. In regards to our interest rate swap agreements, the losses in accumulated other comprehensive income were reclassified into earnings as a result of the discontinuance of cash flow hedges since the originally forecasted Alon Retail Credit Agreement interest payments did not occur by the end of the originally specified time period due to the Refinancing on March 30, 2018, as discussed above.
The following table presents the fair value of our derivative instruments as of December 31, 2019 and 2018. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under our master netting arrangements, including cash collateral on deposit with our counterparties. We have elected to offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements. As a result, the asset and liability amounts below differ from the amounts presented in our consolidated balance sheets. See Note 13 for further information regarding the fair value of derivative instruments as presented below (in millions):
 
 
 
December 31, 2019
 
December 31, 2018
Derivative Type
Balance Sheet Location
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Commodity derivatives(1)
Other current assets
 
$
188.9

 
$
(202.1
)
 
$
158.3

 
$
(142.4
)
Commodity derivatives(1)
Other current liabilities
 
24.4

 
(34.0
)
 
—

 
(8.4
)
Commodity derivatives(1)
Other long-term assets
 
—

 
—

 
2.1

 
(2.4
)
Commodity derivatives(1)
Other long-term liabilities
 
23.4

 
(24.8
)
 
93.0

 
(94.0
)
RIN commitment contracts(2)
Other current assets
 
0.6

 
—

 
2.0

 
—

RIN commitment contracts(2)
Other current liabilities
 
—

 
(1.9
)
 
—

 
(6.7
)
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
Commodity derivatives(1)
Other current assets
 
3.4

 
(2.0
)
 
200.3

 
(157.0
)
Commodity derivatives(1)
Other current liabilities
 
—

 
—

 
—

 
—

Commodity derivatives(1)
Other long-term assets
 
0.2

 
(0.1
)
 
6.1

 
(4.8
)
Interest rate derivatives
Other long-term liabilities
 
—

 
—

 
—

 
—

Total gross fair value of derivatives
 
240.9

 
(264.9
)
 
461.8

 
(415.7
)
Less: Counterparty netting and cash collateral(3)
 
210.7

 
(249.5
)
 
399.9

 
(399.5
)
Total net fair value of derivatives
 
$
30.2

 
$
(15.4
)
 
$
61.9

 
$
(16.2
)
(1) 
As of December 31, 2019 and 2018, we had open derivative positions representing 86,484,065 and 39,277,822 barrels, respectively, of crude oil and refined petroleum products. Of these open positions, contracts representing 600,000 and 16,461,000 barrels were designated as cash flow hedging instruments as of December 31, 2019 and 2018, respectively. Additionally, as of December 31, 2019, we had open derivative positions representing 40,050,000 One Million British Thermal Units, ("MMBTU") of natural gas products.
(2) 
As of December 31, 2019 and 2018, we had open RIN commitment contracts representing 147,000,000 and 137,750,000 RINs, respectively.
(3) 
As of December 31, 2019 and 2018, $38.8 million and $(0.4) million, respectively, of cash collateral (obligation) held by counterparties has been netted with the derivatives with each counterparty.

Total gains (losses) on our hedging derivatives and RIN commitment contracts recorded in the consolidated statements of income are as follows (in millions):
 
 
Year Ended December 31,
 
 
2019
 
2018
 
2017
Gains (losses) on commodity derivatives not designated as hedging instruments recognized in cost of materials and other (1)
 
$
18.0

 
$
0.9

 
$
(33.1
)
Gains (losses) on commodity derivatives not designated as hedging instruments recognized in other operating income (expenses), net (1) (2)
 
—

 
7.7

 
—

Realized gains (losses) reclassified out of accumulated other comprehensive income and into cost of materials and other on commodity derivatives designated as cash flow hedging instruments
 
4.8

 
(1.7
)
 
(38.6
)
Gains recognized in cost of materials and other due to cash flow hedging ineffectiveness on commodity derivatives designated as hedging instruments
 
—

 
0.9

 
0.5

Total gains (losses)
 
$
22.8

 
$
7.8

 
$
(71.2
)

(1)
Gains (losses) on commodity derivatives that are economic hedges but not designated as hedging instruments include unrealized gains (losses) of $(41.0) million, $32.1 million and $(13.0) million for the years ended December 31, 2019, 2018 and 2017, respectively. Of these amounts, approximately $(6.8) million and $8.1 million for the years ended December 31, 2019 and 2018, respectively, represent unrealized (losses) gains where the instrument has matured but where it has not cash settled as of period end, excluding the reversal of prior period settlement differences. Derivative instruments that have matured but not cash settled at the balance sheet date continue to be reflected in derivative assets or liabilities on our balance sheet.
(2) 
See separate table below for disclosures about "trading derivatives."

The effect of cash flow hedge accounting on the consolidated statements of income is as follows (in millions):
 
 
Year Ended December 31,
 
 
2019
Gain (loss) on cash flow hedging relationships recognized in cost of materials and other:
 
 
Commodity contracts:
 
 
Hedged items
 
$
(4.8
)
Derivative designated as hedging instruments
 
4.8

Total
 
$
—


For cash flow hedges, no component of the derivative instruments’ gains or losses was excluded from the assessment of hedge effectiveness for the years ended December 31, 2019, 2018 and 2017. Losses of $3.8 million, $1.5 million and $25.1 million, net of tax, on settled commodity contracts were reclassified into cost of materials and other in the consolidated statements of income during the years ended December 31, 2019, 2018 and 2017, respectively. We estimate that $1.4 million of deferred gains related to commodity cash flow hedges will be reclassified into cost of materials and other over the next 12 months as a result of hedged transactions that are forecasted to occur.
Total gains on our trading forward contract derivatives (none of which were designated as hedging instruments) recorded in other operating (income) expense, net on the consolidated statements of income are as follows (in millions):
 
 
Year Ended December 31,
 
 
2019
 
2018
Realized gains
 
$
5.1

 
$
23.1

Unrealized gains (losses)
 
3.6

 
(3.0
)
 Total
 
$
8.7

 
$
20.1