Inventories

6 Months Ended

Jun. 30, 2019

Inventories consist of the following components:



	June 30, 2019			December 31, 2018
	(In thousands)
Crude oil	$	526,419		$	503,705
Other raw materials and unfinished products⁽¹⁾	341,708			360,124
Finished products⁽²⁾	747,151			662,713
Lower of cost or market reserve	(175,593		)	(360,138		)
Process chemicals⁽³⁾	35,852			31,413
Repair and maintenance supplies and other ⁽⁴⁾	161,044			156,562
Total inventory	$	1,636,581		$	1,354,379


(1)	Other raw materials and unfinished products include feedstocks and blendstocks, other than crude.


(2)	Finished products include gasolines, jet fuels, diesels, lubricants, asphalts, LPG’s and residual fuels.


(3)	Process chemicals include additives and other chemicals.


(4)	Includes RINs.

Our inventories that are valued at the lower of LIFO cost or market reflect a valuation reserve of $175.6 million and $360.1 million at June 30, 2019 and December 31, 2018, respectively. The December 31, 2018 market reserve of $360.1 million was reversed due to the sale of inventory quantities that gave rise to the 2018 reserve. A new market reserve of $175.6 million was established as of June 30, 2019 based on market conditions and prices at that time. The effect of the change in lower of cost or market reserve was an increase to cost of products sold totaling $47.8 million for the three months ended June 30, 2019 and a decrease of $106.9 million for the three months ended June 30, 2018 and a decrease to cost of products sold totaling $184.5 million and $210.8 million for the six months ended June 30, 2019 and 2018, respectively.

At June 30, 2019, the LIFO value of inventory, net of the lower of cost or market reserve, was equal to current costs.

During the three months ended June 30, 2018, the EPA granted the Woods Cross Refinery a one-year small refinery exemption from the Renewable Fuel Standard (“RFS”) program requirements for the 2017 calendar year end. As a result, the Woods Cross Refinery’s gasoline and diesel production are not subject to the Renewable Volume Obligation (“RVO”) for 2017. In the second quarter of 2018, we increased our inventory of RINs and reduced our cost of products sold by $25.3 million, representing the net cost of the Woods Cross Refinery’s RINs charge to cost of products sold in 2017, less the loss incurred for selling 2017 vintage RINs in excess of those which we can use subject to the 20% carryover limit.

During the three months ended March 31, 2018, the EPA granted the Cheyenne Refinery a one-year small refinery exemption from the RFS program requirements for the 2015 and 2017 calendar years end. As a result, the Cheyenne Refinery’s gasoline and diesel production are not subject to the RVO for those years. At the date we received the 2017 Cheyenne Refinery exemption, we had not yet retired RINs to satisfy the 2017 RVO, which we intended to satisfy, in part, with 2016 vintage RINs subject to the 20% carryover limit. In the first quarter of 2018, we increased our inventory of RINs and reduced our cost of products sold by $37.9 million, representing the net cost of the Cheyenne Refinery’s RINs charged to cost of products sold in 2017, less the loss incurred from selling 2016 vintage RINs prior to their expiration in 2018.

In the first quarter of 2018, the EPA provided us 2018 vintage RINs to replace the RINs previously submitted to meet the Cheyenne Refinery’s 2015 RVO. In the first quarter of 2018, we increased our inventory of RINs and reduced our cost of products sold by $33.8 million representing the fair value of the 2018 replacement RINs obtained from the Cheyenne Refinery’s exemption of its 2015 RVO.

Various subsidiaries of HollyFrontier have intervened in three lawsuits brought by renewable fuel interest groups against the EPA in federal appellate courts alleging violations of the RFS under the Clean Air Act and challenging the EPA’s handling of small refinery exemptions. We believe the EPA correctly applied applicable law to the matters at issue and will vigorously defend the EPA’s position on small refinery exemptions. It is too early to assess whether the cases are expected to have any impact on us.