May 9, 2019 / 4:15 PM / 16 days ago

UPDATE 1-Oil quality problems at Russia's Ust-Luga seen lasting until May 11 - trade

* Surgut says clean oil begins to arrive

* Traders don't expect clean oil in tankers before May 11

* Druzhba pipeline still shut, plan unclear

* Russian oil output, Europe refining runs will have to drop (Update with details)

By Dmitry Zhdannikov and Olga Yagova

LONDON/MOSCOW, May 9 (Reuters) - Russian oil quality from the Baltic port of Ust-Luga was improving on Thursday but was still not good enough for refiners in Europe, with required standards expected to be reached only by May 11, trading sources said.

Oil contamination at the port, with organic chlorides that can destroy refining equipment, was first reported late last month.

Russian government officials and pipeline monopoly Transneft had promised to fix the problem by May 6, but the deadline kept being postponed. Russia has been forced to curtail output, adding to global supply shortages.

As of Thursday, organic chloride content in Ust-Luga stood at 50-60 parts per million (ppm), still above normal levels of 10 ppm, four trading sources said.

It will take time before Transneft can empty oil already accumulated in tanks in Ust-Luga, meaning clean oil will load into tankers only around May 11, two trading sources said.

Russian oil firm Surgut told its oil buyers clean crude had started arriving into Ust-Luga tanks on May 9 and its cargoes loading on May 19, 21 and 28 would be fully in line with standards, traders said.

Surgut, Kazakh producers and Rosneft were sellers of the latest cargoes from Ust-Luga, while lifters included Unipec, Glencore, Vitol and Total.

"Everyone is hoping to get this first clean cargo," said a trader with a Russian oil buyer, who asked not to be named because his company doesn't allow him to speak to the press.

Around 10 cargoes previously sold from Ust-Luga, comprising 1 million tonnes of oil worth more than $500 million in normal circumstances, are already marooned across Europe and still looking for buyers because of contamination.

The contamination also forced Russia to shut the Druzhba pipeline, which pumps 1 million barrels per day (bpd) of crude, or 1 percent of global supply.

Druzhba serves Germany, Poland, the Czech Republic, Slovakia, Hungary, Ukraine and Belarus.

Russia's problems lent support to global oil prices and led to a drop in production from the world's second-largest exporter of crude.

Citi has said the problem could cut Russian oil exports by around a tenth or 400,000 bpd, adding that a prolonged outage could force refineries in Europe to cut refining runs steeply.

Three trading sources said on Thursday the contamination had forced Gunvor's 88,000 bpd Rotterdam oil refinery to shut one crude distillation unit last week. Gunvor declined to comment.

Refiners in Europe haven't reported any problems with equipment so far. Most have refused to take contaminated barrels into the system since late April.

The Druzhba pipeline remained shut as of Thursday, according to traders. With Russia on holiday for Victory Day, very little was being done to re-start operations, traders said.

Poland's PKN Orlen said it expects oil in the Druzhba pipeline to flow to Poland in May. (Reporting by Dmitry Zhdannikov and Olga Yagova; Editing by Elaine Hardcastle and Jan Harvey)

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