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* At least 10 contaminated tankers remain unsold
* European refiners refuse to buy oil from Ust-Luga
* Pressure grows on Russia to fix oil quality
* For a map of the Russian pipeline, click on: https://tmsnrt.rs/2DytnnM(Updates with analysts, traders, details)
By Olga Yagova and Dmitry Zhdannikov
MOSCOW/LONDON, May 8 (Reuters) - Trading houses Vitol, Glencore and Trafigura arecaught in the crossfire between Russian oil producers andWestern buyers, which have refused to take contaminated Russiancrude bought by the traders.
At least 10 crude tankers with 1 million tonnes of oil,worth more than $500 million in normal circumstances, aremarooned across Europe and still looking for buyers because theyhave been tainted with organic chloride.
The three trading firms bought the biggest number of cargoesloading from the Russian Baltic port of Ust-Luga in late Aprilto early May, while around two or three cargoes were also takenby trading units of Total and BP, four tradersfamiliar with the market data said.
Russian sellers included Rosneft, Russneft, Surgut and Kazakh firms, according to thetraders and the loading schedules from Ust-Luga port in Apriland May seen by Reuters.
But buyers including Eni, Exxon Mobil,Royal Dutch Shell, PKN and Repsolhave refused to take the oil into their refining systems,according to at least a dozen traders and Refinitiv shiptrackingdata.
Trading houses declined to comment.
"This is a disaster and a huge blow to Russia's image as areliable supplier. We hear promises from the Russian governmentthat the problem will be fixed but it still hasn't been fixed,"said a buyer of Russian crude, who asked not to be identifiedbecause his employer forbids him from speaking to the media.
The contamination was discovered at the end of April,forcing Russia to shut the Druzhba pipeline which pumps 1million barrels per day (bpd) of crude, or 1 percent of globalsupply. Druzhba serves Germany, Poland, the Czech Republic,Slovakia, Hungary, Ukraine and Belarus.
Oil from Ust-Luga, which ships 500,000 bpd to globalmarkets, or 22 large tankers a month, has also been contaminatedwith organic chloride. The chemical compound is used for oilextraction but can damage refining equipment.
The Russian supply problems contributed to an oil pricespike to six-month highs and led to a drop in production fromthe world's second-largest exporter of crude.
"The severity of the problem could mean that up to 400,000bpd of Russian exports could be pulled out of the market," Citisaid in a note adding that a prolonged outage could forcerefineries in Europe to cut refining runs steeply.
A build-up of unsold cargoes from Ust-Luga could create asupply shortage in Europe and dent financial results of tradinghouses, which also faced a tough business environment in 2018.
The Russian government promised to fix the quality problemat Ust-Luga by May 6-8 but five Russian oil buyers said onWednesday the levels of organic chloride remained too high. At60-75 parts per million (ppm), they were six times above normallevels, down from 10-15 times above the norm previously.
"I asked my refining manager at what discount he would takesuch a cargo," a trader with a Western major that declined acargo from Ust-Luga said.
"Can we make a profit if we buy it at a huge discount? Myrefining manager told me - don't touch it. Why bother? The risksto refining equipment are just too big."
FEARS GROW
The trading houses are helping Russia ease tensions withbuyers, as they are freeing up Russian producers and pipelinemonopoly Transneft from having to dilute thecontaminated oil with clean supplies before finding buyers.
Crude contamination is not rare and has happened in recentyears in the United States, Mexico and the Middle East. But thescale of Russia's problem is unusually large.
For Ust-Luga cargoes, fixing the problem is a challenge, asblending contaminated crude with clean oil to meet requiredstandards requires time, storage space and money.
Terminals in Europe's biggest storage area,Amsterdam-Rotterdam-Antwerp, told customers they would notaccept any crude with organic chloride above 50 ppm, threetrading sources said.
The Russian government and Transneft have not said whetherRussian oil producers would receive compensation, which could inturn be provided to traders or western refiners. Moscow andTransneft have also not offered any help towards dilutingcontaminated oil.
A Russian presidential spokesman declined to answer aquestion on Wednesday about whether Transneft should compensateRussian producers.
Russian officials have said contaminated oil from theDruzhba pipeline could be taken by rail towards the Black Seaport of Novorossiisk, where Transneft has large storage tanks.
"We are now performing mandatory quality checks from everysingle Russia port to avoid a repeat of the Ust-Luga disaster,"a second trader with a Western major said.(Additional reporting by Gleb Gorodyankin and Ahmad GhaddarWriting by Dmitry ZhdannikovEditing by Dale Hudson)
