"The award shows that they really need the oil, no joking. I didn't expect it at all," one of the tender winners, a European oil company, said. "We wanted to put in higher prices and could have won even then, but we were not as greedy."

IOC made an almost clean sweep of most of the offers in the latest diesel buy tender, which was already thinly participated due to tighter supplies in the Middle East. They had paid nearly 10 to 20 cent premiums per barrel higher versus last tenders for first-half of August delivery cargoes.

Traders said the award would raise Asian gas oil prices,already higher on Monday, on the back of rallying crude. August gas oil paper sellers early on Monday raised offers by nearly 70 cents to $20.75 per barrel, over Friday's $20.00 quotes. This was among the market's highest level for the year.

Indian sources said the higher IOC award came as supplies from India faced refinery production woes. Reliance Petroleum was facing teething problems at the diesel-oriented newly started-up Jamnagar refinery and was supplying lower volumes than planned, they said. Indian official sources said Reliance now planned to supply 80,000 tonnes by this month-end, down from 1,35,000 tonnes promised earlier.

Another new Indian refinery, Panipat, which had been commissioned in May 1998, has also had production problems, the sources said. A company official told Reuters last week that Panipat's main crude processing units would have to be shut down for at least two weeks of maintenance from last Thursday. A crude distiller was hit by fire on June 2. The latest award, which bringsIndia's total diesel purchase in August to 7,65,000 tonnes so far, also puts the country above budgeted oil import volumes for the current fiscal year.

Earlier under the Indian Oil Economy Budget for April 1999 to March 2000, IOC had penciled in sharply lower 3.061 million tonnes of imports, compared with over 11 million in the last fiscal year. IOC had presumed Reliance would meet most of India's diesel requirements from July.

But India's April to August imports through spot and semi-term tenders have so far totalled up to 3.8 million tonnes. IOC has issued a tender for more August diesel imports over the weekend, which closes on Thursday.

Traders said they did not expect India to stop diesel imports at least until the fourth quarter of the year.