Profits from making one of the world’s dirtiest fuels are soaring in Asia as Chinese refiners snap up replacement feedstocks for dwindling Venezuelan oil shipments after a partial sanctions reprieve allowed exports to the US to resume. 

Fuel-oil margins in Singapore reached a nine-month high after flows of thick, sulfurous Venezuelan crude to Asia slumped by roughly 40% over the past five months. At the same time, deliveries to US refineries surged after the regime of Nicolas Maduro negotiated an agreement that eased some US sanctions. 

Refiners in Chinese hubs such as Shandong are filling the gap by snapping up high-sulfur fuel oil from Russia that can be interchanged for Venezuela’s bituminous crude. Fuel oil is typically used to power ship engines and, in some regions, electricity-generating stations.

China imported 327,000 barrels a day of high-sulfur fuel oil in February, a record in data going back to 2018, according to market intelligence firm Kpler. Chinese demand is expected to remain strong, according to industry consultant FGE. 

“The substitution of bitumen by fuel oil is the main driver behind higher fuel oil crack margins in Singapore,” said Mohith Velamala, an oil analyst at BloombergNEF. “The flow of fuel oil cargoes to Shandong is quite strong right now.”

Margins are widening at a time when energy markets already were in upheaval following last month’s European ban on Russian seaborne fuel imports.

Commodity-pricing agencies such as S&P Global Platts have excluded Russian fuel oil in its assessments following the ban, contributing to the rally, according to Richard Jones, an analyst at Energy Aspects Ltd. Margins may widen further in coming months as some Middle Eastern economies burn more of the fuel to power air conditioners, he added.

Profit margins from making fuel oil are tilting the balance in favor of sour crude oils amid concerns over the stability of supplies of the Russian Urals grade of crude, and growing US exports of light, low-sulfur oil from the Permian Basin, according to the last report from OPEC.