filings.toolsItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICE RISK
We are exposed to market risks related to the volatility in the price of feedstocks (primarily crude oil, waste and renewable feedstocks, and corn), the products we produce, 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 futures and options to manage the volatility of:
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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
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forecasted purchases and/or product sales at existing market prices that we deem favorable.
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.
The following sensitivity analysis includes all of our derivative instruments entered into for purposes other than trading with which we have market risk (in millions):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Gain (loss) in fair value resulting from: | |||||||||||
| 10% increase in underlying commodity prices | $ | (60) | $ | (61) | |||||||
| 10% decrease in underlying commodity prices | 60 | 61 |
See Note 14 of Condensed Notes to Consolidated Financial Statements for notional volumes associated with these derivative contracts as of June 30, 2022.
COMPLIANCE PROGRAM PRICE RISK
We are exposed to market risk related to the volatility in the price of credits needed to comply with the Renewable and Low-Carbon Fuel Blending Programs. To manage this risk, we enter into contracts to purchase these credits. As of June 30, 2022 and December 31, 2021, the amount of gain or loss in the fair value of derivative instruments that would have resulted from a 10 percent increase or decrease in the underlying price of the contracts was not material. See Note 14 of Condensed Notes to Consolidated Financial Statements for a discussion about these blending programs.
INTEREST RATE RISK
The following table provides information about our debt instruments (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. See Note 5 of Condensed Notes to Consolidated Financial Statements for additional information related to our debt.
| June 30, 2022 (a) | |||||||||||||||||||||||||||||||||||||||||||||||
| Expected Maturity Dates | |||||||||||||||||||||||||||||||||||||||||||||||
| Remainder of 2022 | 2023 | 2024 | 2025 | 2026 | There- after | Total | Fair Value | ||||||||||||||||||||||||||||||||||||||||
| Fixed rate | $ | — | $ | — | $ | 169 | $ | 795 | $ | 905 | $ | 8,287 | $ | 10,156 | $ | 9,851 | |||||||||||||||||||||||||||||||
| Average interest rate | — | % | — | % | 1.2 | % | 3.1 | % | 4.1 | % | 4.9 | % | 4.7 | % | |||||||||||||||||||||||||||||||||
| Floating rate | $ | 823 | $ | 20 | $ | — | $ | — | $ | — | $ | — | $ | 843 | $ | 843 | |||||||||||||||||||||||||||||||
| Average interest rate | 4.4 | % | 3.9 | % | — | % | — | % | — | % | — | % | 4.4 | % | |||||||||||||||||||||||||||||||||
| December 31, 2021 (a) | |||||||||||||||||||||||||||||||||||||||||||||||
| Expected Maturity Dates | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2023 | 2024 | 2025 | 2026 | There- after | Total | Fair Value | ||||||||||||||||||||||||||||||||||||||||
| Fixed rate | $ | 300 | $ | — | $ | 169 | $ | 1,374 | $ | 1,726 | $ | 7,637 | $ | 11,206 | $ | 12,838 | |||||||||||||||||||||||||||||||
| Average interest rate | 4.0 | % | — | % | 1.2 | % | 3.0 | % | 3.9 | % | 5.0 | % | 4.5 | % | |||||||||||||||||||||||||||||||||
| Floating rate | $ | 810 | $ | 20 | $ | — | $ | — | $ | — | $ | — | $ | 830 | $ | 830 | |||||||||||||||||||||||||||||||
| Average interest rate | 3.5 | % | 3.9 | % | — | % | — | % | — | % | — | % | 3.5 | % |
(a)Excludes unamortized discounts and debt issuance costs.
FOREIGN CURRENCY RISK
We are exposed to exchange rate fluctuations on transactions related to our foreign operations that are denominated in currencies other than the local (functional) currencies of those operations. To manage our exposure to these exchange rate fluctuations, we often use foreign currency contracts. As of June 30, 2022 and December 31, 2021, the fair value of our foreign currency contracts was not material.
See Note 14 of Condensed Notes to Consolidated Financial Statements for a discussion about our foreign currency risk management activities.
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