Delek US Holdings, Inc. 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK These disclosures should be read in conjunction with the condensed consolidated financial statements, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and other information presented herein, as well as in the "Quantitative and Qualitative Disclosures About Market Risk" section contained in our Annual Report on Form 10-K, as filed on February 28, 2020. Price Risk Management Activities At times, we enter into the following instruments/transactions in order to manage our market-indexed pricing risk: commodity derivative contracts which we use to manage our price exposure to our inventory positions, future purchases of crude oil and ethanol, future sales of refined products or to fix margins on future production; and future commitments to purchase or sell RINs at fixed prices and quantities, which are used to manage the costs associated with our RINs obligations and meet the definition of derivative instruments under ASC 815, Derivatives and Hedging ("ASC 815"). In accordance with ASC 815, all of these commodity contracts and future purchase commitments are recorded at fair value, and any change in fair value between periods has historically been recorded in the profit and loss section of our condensed consolidated financial statements. Occasionally, at inception, the Company will elect to designate the commodity derivative contracts as cash flow hedges under ASC 815. Gains or losses on commodity derivative contracts accounted for as cash flow hedges are recognized in other comprehensive income on the condensed consolidated balance sheets and, ultimately, when the forecasted transactions are completed, in net revenues or cost of materials and other in the condensed consolidated statements of income. The following table sets forth information relating to our open commodity derivative contracts as of September 30, 2020 ($ in millions): Total Outstanding Notional Contract Volume by Year of Maturity Contract Description Fair Value Notional Contract Volume 2020 2021 2022 2023 Contracts not designated as hedging instruments: Crude oil price swaps - long (1) $ (5.5) 30,394,000 13,565,000 16,829,000 — — Crude oil price swaps - short (1) (7.2) 30,457,000 13,808,000 16,649,000 — — Inventory, refined product and crack spread swaps - long (1) 2.4 65,615,000 13,130,000 22,885,000 22,200,000 7,400,000 Inventory, refined product and crack spread swaps - short (1) (13.2) 65,762,000 13,397,000 22,765,000 22,200,000 7,400,000 Natural gas swaps - long (2) 2.7 3,237,500 3,237,500 — — — Natural gas swaps - short (2) (2.2) 9,942,500 9,942,500 — — — RIN commitment contracts - long (3) 2.8 34,700,000 34,700,000 — — — RIN commitment contracts - short (3) (26.0) 24,500,000 24,500,000 — — — Total $ (46.2) 264,608,000 126,280,000 79,128,000 44,400,000 14,800,000 Contracts designated as cash flow hedging instruments: Crude oil price swaps - long (1) $ — — — — — — Crude oil price swaps - short (1) — — — — — — Inventory, refined product and crack spread swaps - long (1) (1.5) 45,000 45,000 — — — Inventory, refined product and crack spread swaps - short (1) 2.7 45,000 45,000 — — — Total $ 1.2 90,000 90,000 — — — (1) Volume in barrels (2) Volume in MMBTU (3) Volume in RINs 79 | Management's Discussion and Analysis Interest Risk Management Activities We have market exposure to changes in interest rates relating to our outstanding floating rate borrowings, which totaled approximately $2,186.7 million as of September 30, 2020. The annualized impact of a hypothetical one percent change in interest rates on our floating rate debt as of September 30, 2020 would be to change interest expense by approximately $21.9 million. Commodity Derivatives Trading Activities In the first half of 2018, we began entering into active trading positions in a variety of commodity derivatives, which include forward physical contracts, swap contracts, and futures contracts. These contracts are classified as held for trading and are recognized at fair value with changes in fair value recognized in the income statement. These trading activities are undertaken by using a range of contract types in combination to create incremental gains by capitalizing on crude oil supply and pricing seasonality. These contracts had remaining durations of less than one year as of September 30, 2020. The following table sets forth information relating to commodity derivative contracts held for trading purposes as of September 30, 2020: Contract Description Less than 1 year Over the counter forward sales contracts Notional contract volume (1) 658,002 Weighted-average market price (per barrel) $ 30.80 Contractual volume at fair value (in millions) $ 20.3 Over the counter forward purchase contracts Notional contract volume (1) 717,714 Weighted-average market price (per barrel) $ 30.76 Contractual volume at fair value (in millions) $ 22.1 (1) Volume in barrels