China has put a brake on demand and some suppliers, like South Korea, were gearing up for exports.

The price structure of the market showed prompt demand but further out prices were weakening, traders said.

"We anticipate China demand coming off after the first week of February due to the Chinese New Year celebrations," one trader with an oil major based in Hong Kong said.

Traders said the China's recent anti-smuggling campaign and re-enforcement of an import ban have also hurt exports from Hong Kong.

Sources at the largest storage supplier in Hong Kong, China Resources Petroleum Co (CRC), said that compared to January purchases of nearly 500,000 tonnes for its 70,000 tonnes terminal, it was only looking at less than regular 300,000 tonnes buying in February.

Under sell pressure, benchmark Singapore gas oil prices have fallen by more than $1.00per barrel, or seven percent, over the last three days to $13.50 on Wednesday.

An assembly of sellers formed in the late evening cash market on Wednesday.

Only a Singapore trader, Hin Leong Trading, with a largenet work of floating storage took on offers, buying consistently from a peak of $15.50 a week earlier down to $13.50 per barrel.

"It's value for money to us. If the market comes off and we have capacity to store, it's not so bad to buy," a source with the trader said.

But most market sources said they were bearish.

Korean refiners, in competition with Singapore exporters, were looking to de-stock high inventories as peak winter heating oil demand passes.

They were offering discounts to Singapore prices even as Singapore refiners themselves raise production to or near capacity.

"Margins are good, refiners are trying to take advantage to produce as much as they can but demand is slipping," one trader with a western oil company said.

The full impact of the rising market supply, howeverwill only be felt in March's trading, traders said.

The gas oil paper markets showed a backwardation between February and March prices, signalling premium prices still prevail for prompt cargoes.

But between March and April, the market was in contango, which may encourage traders to consider storage again as supply is expected to outstrip demand.

Traders said the prompt market was still tight as India's spectacular purchase of 19 cargoes in February, totalling more than 800,000 tonnes, has sucked up any surplus from the Middle East, another competing export centre.

Spot premiums in the Arab Gulf were firming to last September's highs levels of around 90 cents per barrel. Almost no spot cargoes were left unsold in February, traders said.

"Indonesia is a question mark now," one trader said.

The third regional key gas oil buyer after China and India, Indonesia has returned to regular imports but traders said they did not expect large purchases in March.

Cash-strapped state owned Pertamina's buyingprowess was likely to be affected by the falling Indonesian rupiah against US dollar value.

The rupiah, which was steady at around 7,000 to one US dollar late last year, has slipped to 9,200 in the past few weeks on worries about political instability.