Gas oil markets may pick up on firm demand from the country but fuel oil may be dampened by a prompt supply overhang, they said.

India's larger-than-expected imports by tender in May had given the Asian diesel market strength early in the week.

"The country's award might see the market firm a little given that the market was already tight with South Korean refinery turnarounds," one trader said. "Everyone was earlier expecting maybe four to five cargoes," said another trader.

Indian Oil Corporation (IOC) surpassed expectations, buying seven 0.25 per cent sulphur diesel cargoes in its May tender.

This was its third buy tender for May, bringing total purchases for the month close to 5,40,000 tonnes, one of its highest 0.25 per cent buys on record. From the latest tender award, at least five cargoes would also have to be sourced fromthe Far East as traditional Middle East refiners were still tight on lower sulphur supplies.

"But fundamentals are not the big factor in the market right now," one trader with a European oil company said. "The market has been dragged up and down with the West and that will continue this week," he added.

Traders said that although Indian demand was on the backburner, it did not fully compensate for the absence of other key buyers-China and Indonesia.

Fuel oil traders were also hopeful about demand. "Fuel oil looks good if the fundamental over hang in the prompt manages to clear," one trader with an oil major said. "The market has not been keeping up with crude."

Traders said the market's steep contango, with prompt prices below forward, had pushed cheap cargoes into storage. It was to China's growing demand that traders now hoped would cure the storage overhang. With the issuance of much delayed import quotas and permits for the first quarter of the year last month, China has since stepped upimports, traders said.

Supplies also appeared shorter as Middle East fuel oil demand rises due to the summer season and some refiners cut exports, they said. Meanwhile, gasoline and jet-kerosene levels which had rallied strongly in past weeks on a firm arbitrage to the United States' West Coast (USWC), were likely to taper off this week.

The arbitrage window appeared to have closed from May onwards as the market corrected in the USWC, which had been reeling from refinery woes.

But of the two products, the jet-kerosene market faced better prospects of staying firm as lower demand in the West was made up by higher Indian imports, traders said.

IOC bought three kerosene cargoes in a May 1-10 delivery tender late last Friday, adding to its bumper six cargo purchase for May in an earlier tender.

Gasoline spot demand was poor as an anticipated boost from the summer driving season in Northeast Asia had not materialised.

Traders expected the reforming margin -- spread of gasoline over naphtha -- tocontinue its slide into narrower territories from current levels of around $3.50 per barrel.