China steps up Russian oil imports as teapots buy Urals crude

* Shandong teapot refiners buy Urals to replace expensive Oman

* Narrow Brent-Dubai price spread opens arbitrage

MOSCOW/SINGAPORE, Feb 14 (Reuters) - Russian crude imports to China have risen in early 2017 as the country’s independent, or teapot, refiners have expanded their diet to include the Urals grade, trade sources said on Tuesday.

Russia could expand its market share in China, the second-largest oil consumer, this year after a drop in Brent prices relative to Middle East crude benchmark Dubai opened the arbitrage for Russian Urals to head east. Russia topped Saudi Arabia as the biggest crude seller to China in 2016.

Shandong Wonfull Petrochemical Group bought about 2 million barrels of Urals crude for delivery in February and May, two sources with knowledge of the matter told Reuters.

Of these, Mercuria will deliver 1.2 million barrels of Urals this month from the supertanker Atromitos that is anchored off Qingdao port, one of the sources said. The ship is also carrying 600,000 barrels of North Sea Forties, the source said.

“The (crude’s) quality is good and is very similar to Oman,” one of the sources said, adding that Urals also has better refining economics.

Urals is priced against the Brent benchmark, which last month narrowed to its lowest in more than a year against Dubai. DUB-EFS-1M

Teapots are replacing Middle East mainstay grade Oman with Urals after it became more expensive after output cuts by the Organization of the Petroleum Exporting Countries, traders said.

Another Shandong refiner Tianhong Chemical also received Russian Urals onboard the supertanker New Pearl last month, one of the sources said, citing Chinese port data.

“Urals has been a stranger for the Chinese market for ages, it was clear such shipments didn’t work for us, but suddenly we see a possibility, worth trying,” said a trader with a Chinese refiner.

More Urals are on the way to China. Lukoil’s trading arm Litasco is shipping 1 million barrels onboard the SKS Segura, part of which it plans to sell to a teapot and store the rest, said three trade sources with knowledge of the matter.

Unipec, the trading arm of Asia’s largest refiner Sinopec, and Litasco have chartered two more Suezmax tankers, the Odessa and Euro, to load from Novorossiisk in mid-February, which are expected to load to China, according to shipping data obtained by Reuters.

Wonfull, Mercuria and Litasco do not comment on their trades. Tianhong could not be immediately reached for comment.

Unipec is an active buyer of Urals. It sent two supertankers of Urals to China in October and November and is expected to ship one more in February this year, said two traders familiar with Unipec’s operations.

Reporting by Olga Yagova in Moscow and Florence Tan in Singapore