filings.toolsItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICE RISK
We are exposed to market risks related to the volatility in the price of crude oil, refined products (primarily gasoline and distillate), grain (primarily corn), and natural gas used in our operations. To reduce the impact of price volatility on our results of operations and cash flows, we use commodity derivative instruments, including swaps, futures, and options to manage the volatility of:
| • | inventories and firm commitments to purchase inventories generally for amounts by which our current year inventory levels (determined on a LIFO basis) differ from our previous year-end LIFO inventory levels and |
| • | forecasted feedstock and refined product purchases, refined product sales, natural gas purchases, and corn purchases to lock in the price of those forecasted transactions at existing market prices that we deem favorable. |
We use the futures markets for the available liquidity, which provides greater flexibility in transacting our price risk activities. We use swaps primarily to manage our price exposure. We also enter into certain commodity derivative instruments for trading purposes to take advantage of existing market conditions related to future results of operations and cash flows.
Our positions in commodity derivative instruments are monitored and managed on a daily basis by our risk control group to ensure compliance with our stated risk management policy that has been approved by our board of directors.
The following sensitivity analysis includes all positions at the end of the reporting period with which we have market risk (in millions):
| Derivative Instruments Held For | |||||||
| Non-Trading Purposes | Trading Purposes | ||||||
| December 31, 2015: | |||||||
| Gain (loss) in fair value resulting from: | |||||||
| 10% increase in underlying commodity prices | $ | (45 | ) | $ | — | ||
| 10% decrease in underlying commodity prices | 45 | 5 | |||||
| December 31, 2014: | |||||||
| Gain (loss) in fair value resulting from: | |||||||
| 10% increase in underlying commodity prices | (127 | ) | (2 | ) | |||
| 10% decrease in underlying commodity prices | 126 | 7 |
See Note 20 of Notes to Consolidated Financial Statements for notional volumes associated with these derivative contracts as of December 31, 2015.
COMPLIANCE PROGRAM PRICE RISK
We are exposed to market risk related to the volatility in the price of biofuel credits and GHG emission credits needed to comply with various governmental and regulatory programs. To manage these risks, we enter into contracts to purchase these credits when prices are deemed favorable. Some of these contracts are derivative instruments; however, we elect the normal purchase exception and do not record these contracts at their fair values. As of December 31, 2015, there was an immaterial amount of gain or loss in the fair value of derivative instruments that would result from a 10 percent increase or decrease in the underlying price of the contracts. See Note 20 of Notes to Consolidated Financial Statements for a discussion about these compliance programs.
INTEREST RATE RISK
The following table provides information about our debt obligations (dollars in millions), the fair values of which are sensitive to changes in interest rates. Principal cash flows and related weighted-average interest rates by expected maturity dates are presented. We had no interest rate derivative instruments outstanding as of December 31, 2015 or 2014.
| December 31, 2015 | |||||||||||||||||||||||||||||||
| Expected Maturity Dates | |||||||||||||||||||||||||||||||
| 2016 | 2017 | 2018 | 2019 | 2020 | There- after | Total (a) | Fair Value | ||||||||||||||||||||||||
| Fixed rate | $ | — | $ | 950 | $ | — | $ | 750 | $ | 850 | $ | 4,474 | $ | 7,024 | $ | 7,467 | |||||||||||||||
| Average interest rate | — | % | 6.4 | % | — | % | 9.4 | % | 6.1 | % | 6.3 | % | 6.6 | % | |||||||||||||||||
| Floating rate | $ | 117 | $ | — | $ | — | $ | — | $ | 175 | $ | — | $ | 292 | $ | 292 | |||||||||||||||
| Average interest rate | 1.7 | % | — | % | — | % | — | % | 1.5 | % | — | % | 1.6 | % |
| December 31, 2014 | |||||||||||||||||||||||||||||||
| Expected Maturity Dates | |||||||||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | There- after | Total (a) | Fair Value | ||||||||||||||||||||||||
| Fixed rate | $ | 475 | $ | — | $ | 950 | $ | — | $ | 750 | $ | 4,074 | $ | 6,249 | $ | 7,436 | |||||||||||||||
| Average interest rate | 5.2 | % | — | % | 6.4 | % | — | % | 9.4 | % | 6.9 | % | 7.0 | % | |||||||||||||||||
| Floating rate | $ | 126 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 126 | $ | 126 | |||||||||||||||
| Average interest rate | 2.0 | % | — | % | — | % | — | % | — | % | — | % | 2.0 | % |
| (a) | Excludes unamortized discount and fair value adjustments recorded when the debt was acquired in connection with a business combination. |
FOREIGN CURRENCY RISK
As of December 31, 2015, we had commitments to purchase $292 million of U.S. dollars. Our market risk was minimal on these contracts, as all of them matured on or before January 31, 2016, resulting in a gain of $10 million in the first quarter of 2016.
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