Crude oil sales from storage tanks around Singapore rose to an 11-month high in March, with nearly half of the volumes going to China and traders clearing inventories ahead of record shipments to Asia expected to arrive in April.

Traders sold a total of 22.6 million barrels of crude from storage in Singapore, southern Malaysia and northern Indonesia in March, Thomson Reuters Eikon trade data showed. Around half of the volumes went to China, partly to help quench the still-growing demand from the country’s independent refiners.

“Strong demand from the teapots played its part, as they feared delays to their June quota renewal, and so (they) over-bought during Q1 2017,” said Virendra Chauhan, oil analyst at Energy Aspects.

China started granting independent refiners, sometimes called teapots, crude oil import rights from 2015, resulting in a surge of overseas orders in 2016. That has continued into this year, with China’s overall March crude imports hitting a record at nearly 9.2 million barrels per day (bpd).

Despite the large sales this pulled from Singapore storage, the inventory drawdown does not necessarily indicate that an effort led by the Organization of the Petroleum Exporting Countries (OPEC) to cut production to tighten supplies and prop up prices is bearing fruit.

“It’s too early to say (if this means the OPEC output cut is working). Of course China buying almost 600,000 barrels per day more crude in Q1 2017 has helped, but we don’t see that as a sustainable pace of growth,” Chauhan said.

There are also concerns that while China’s surging imports eat up crude volumes, they may contribute to a fuel overhang as Chinese refiners churn out more products like gasoline and diesel than the market can absorb.

MORE OIL ARRIVING

Traders said the storage clearances were also in part due to anticipation of large volumes coming into Asia from other regions in the coming weeks.

Crude shipments to Asia will rise to a record of 744.3 million barrels in April, about 20 million barrels more than March deliveries, according to Eikon trade data.

“The 20 million (additional) barrels and the 22.6 million barrels (sold from storage) – there is some kind of correlation there,” said Oystein Berentsen, managing director for oil trading company Strong Petroleum in Singapore.

“They are refilling their storage tanks … The contango is a bit deeper, so if you already have an empty tank and you are paying 50 to 60 cents a month then it makes economical sense,” Berentsen said.

Producers in Latin America, the United States and the Mediterranean have been taking advantage of higher prices in Asia than in the Atlantic basin, with the trade data showing they will ship a record 87.6 million barrels of crude to Asia this month.

The April-arrival Atlantic Basin crude shipments to Asia were likely traded in late-January or February when U.S. WTI crude prices were about $2.50 a barrel below global benchmark Brent crude CL-LCO1=R, making the trades profitable.

Oil shipments from the U.S. Gulf Coast, via the Cape of Good Hope, typically take up to 60 days to reach Asia.

Source: Reuters (Reporting by Mark Tay, with additional reporting by Henning Gloystein; Editing by Tom Hogue)