Sunoco 2012 Annual Report Download - page 67
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Commodity Market Risk
We are exposed to volatility in crude oil and refined products commodity prices. To manage such
exposures, inventory levels and expectations of future commodity prices are monitored when making decisions
with respect to risk management and inventory carried. Our policy is to purchase only commodity products for
which we have a market and to structure our sales contracts so that price fluctuations for those products do not
materially affect the margin we receive. We also seek to maintain a position that is substantially balanced within
our various commodity purchase and sales activities. We may experience net unbalanced positions for short
periods of time as a result of production, transportation and delivery variances, as well as logistical issues
associated with inclement weather conditions. When unscheduled physical inventory builds or draws do occur,
they are monitored and managed to a balanced position over a reasonable period of time.
We do not use futures or other derivative instruments to speculate on crude oil or refined products prices, as
these activities could expose us to significant losses. We do use derivative contracts as economic hedges against
price changes related to our forecasted refined products purchase and sale activities. These derivatives are
intended to have equal and opposite effects of the purchase and sale activities. At December 31, 2012, the fair
market value of our open derivative positions was a net liability of $3 million on 1.5 million barrels of refined
products. These derivative positions vary in length but do not extend beyond one year. The potential decline in
the market value of these derivatives from a hypothetical 10-percent adverse change in the year-end market
prices of the underlying commodities that were being hedged by derivative contracts at December 31, 2012 was
estimated to be $13 million. This hypothetical loss was estimated by multiplying the difference between the
hypothetical and the actual year-end market prices of the underlying commodities by the contract volume
amounts.
For additional information concerning our commodity market risk activities, see Note 15 to the consolidated
financial statements included in Item 8. “Financial Statements and Supplementary Data.”
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