* Europe saturated with Russian, Saudi crude
* Chinese demand more robust
* Record discounts of Brent to Dubai makes Urals cheaper
* Wood Mackenzie sees China using price collapse to fill
stocks
(Updates with details, background)
By Olga Yagova and Gleb Gorodyankin
MOSCOW, March 25 (Reuters) - China is buying a record 1.6
million tonnes of Russian oil for loading at sea over the next
four weeks, taking advantage of rock bottom prices for Russia's
flagship Urals grade combined with a collapse in demand in
Europe, traders said on Wednesday.
The volumes make for a new monthly record of Urals supply to
China after they surpassed 1.2 million tonnes in January.
They also provide a lifeline to Russian firms as they
struggle to sell oil in Europe because the coronavirus has led
to a deep fall in demand. At the same time, rival Saudi Arabia
has pledged to flood customers with crude in a market share
battle with Russia.
The deliveries could also indicate China is using the
collapse in oil prices to fill its strategic reserves.
Analysts from Wood Mackenzie estimate China's strategic and
commercial petroleum reserves could reach 1.15 billion barrels
in 2020, equivalent to 83 days of oil demand, up from 900
million in 2019 and just 200 million barrels in 2014.
Three traders in the Urals market said China's Unipec
purchased some 800,000 tonnes of Urals loading from Baltic ports
in the second half of March and some 500,000 tonnes of Urals
loading in early April.
The company will offload cargoes into supertankers or very
large crude carries (VLCCs) at Denmark's Skaw ship-to-ship
terminal and send them to China.
So far, it has lined up three VLCCs scheduled to reach China
between mid-May and early June, traders said.
Shell also booked a VLCC to ship 300,000 tonnes of
Urals to China for loading in the first half of April, two
traders said.
Unipec's parent company Sinopec did not respond
to a request for comment. Royal Dutch Shell said it does not
comment on trading activity.
The sources, speaking on condition of anonymity, said
several other Chinese refiners have also placed requests for
Urals. They declined to name potential buyers because of
confidentiality clauses.
Traders said Urals became attractive in Asia after European
benchmark Brent fell to its widest discount yet to Dubai of more
than $4.50 per barrel <DUB-EFS-1M>.
Urals is priced off Brent, while competing Middle Eastern
grades in Asia tend to be priced off Dubai.
"It's a great deal now even if you have to pay a lot for
transport," a trader in the European market said. Urals cargoes
loading from Baltic ports are trading at a discount of
$3.50-$4.00 per barrel to dated Brent. <BFO-URL-NWE>
"It is tough to sell Urals in Europe now... and China is a
desirable destination," a trader in the Urals market said.
Urals' deliveries to China take up to two months and the
long journey is economic when forward prices are higher than
prompt prices, a market structure known as contango.
"If you have long delivery period, it's easier to choose
more profitable pricing," a trader in the Urals market said.
Two traders also said demand for Urals among Chinese
refiners was boosted by resilient diesel and fuel oil cracks,
which have been hit less than gasoline and jet kerosene.
"Margins are not good, but diesel is more or less fine and
is expected to recover towards the summer season," a trader
supplying to Chinese refiners said.
(Additional reporting by Aizhu Chen in Singapore; editing by
Dmitry Zhdannikov, Jason Neely and Barbara Lewis)