UPDATE 2-U.S. sour crude sellers cut prices after China tariff, OPEC output increase - sources

increase - sources@

* At least 10 mln bbls to land in Asia in Q3 - sources

* Cargoes destined for South Korea, Japan, Malaysia, India

* Sellers cut offers for Mars crude for Oct delivery (Replaces graphic)

SINGAPORE, July 4 (Reuters) - Sellers of U.S. sour crude oil have cut their offers for Asian buyers on concern that demand may fall as China threatens to impose tariffs on oil from the United States and Middle East supply may rise after major producers agreed to increase output, multiple trade sources said on Wednesday.

Chinese buyers plan to scale back their U.S. high-sulfur, or sour, crude purchases after Beijing said last month it will impose tariffs on U.S. energy products without specifying when they would begin. The tariff decision is part of an escalating trade dispute between the world's two biggest economies.

U.S. oil sellers "are worried about the trade war and they panicked. China's buying has slowed as most of the refineries are pending (purchases)," said one of the sources, a buyer with a North Asian refiner.

The price cut also follows Saudi Arabia's plan to raise its sour crude output by 1 million barrels per day from May to July to comply with the latest decision of the Organization of the Petroleum Exporting Countries (OPEC) on June 22 to increase production.

An influx of cheaper U.S. sour crude may depress Asia's demand for spot Middle East oil for a second month in July, when September-loading cargoes trade, the sources said.

Sellers are currently offering the U.S. sour crude grade Mars to Asian buyers for delivery in October at $1 to $1.50 a barrel above Dubai quotes on a cost-and-freight basis, on par with Middle East sour crude Oman, the sources said. That is down at least 50 cents a barrel from the Mars sale prices for September delivery, they said.

"Many traders are keen to offer U.S. crude to us. We plan to buy if the price goes lower," said the North Asian refinery source.

Traders last month booked record volumes of U.S. crude for loading in the third quarter when the arbitrage was open and the influx is expected to replace supplies from the Middle East, Russia and Africa.

At least 10 million barrels of U.S. Mars crude have been sold to refiners in Japan, South Korea, Malaysia and India for third quarter delivery, trade sources have estimated.

South Korea's second largest refiner GS Caltex has bought 4 million barrels of Mars crude in recent months, the sources said.

Japan's top refiner JXTG Nippon Corp and India's Bharat Petroleum Corp have also purchased U.S. sour crude. Malaysia's Petroliam Nasional Bhd has also bought its first ever U.S. oil cargo, 1 million barrels of Mars for its Malacca refinery.

(Reporting by Florence Tan and Jessica Jaganathan in SINGAPORE Additional reporting by Osamu Tsukimori in TOKYO, Meng Meng in BEIJING and Devika Krishna Kumar in NEW YORK; Editing by Christian Schmollinger)