Essar OilBSE -0.60 % has offered a rare term contract to sell up to 210,000 tonnes of diesel over August to October, and traders expect supply from the refiner to increase over the next few months as domestic demand falls during the monsoon season.

That could put a lid on Asia's gasoil margins, which have recently been supported by fewer exports from North Asia due to refinery maintenance and cuts in shipments from China due to limits on export quotas.

When monsoon rains hit India in late June, they typically trim demand for power use and irrigation, leaving Indian refiners with plenty to export.

"I think Essar will have spot cargoes available as well as (the term) ... though it depends on domestic demand," a Singapore-based source familiar with the Indian market said. Essar Oil typically exports one or two spot cargoes of diesel each month, according to traders.

Diesel, a heavily subsidised fuel in India that accounts for a third of the country's fuel use, powers small to medium-sized generators to run air-conditioners and make up for low hydro power output in the summers. It also is used to pump water from wells to irrigate fields in the dry season.

Essar Oil took a three-month break from the spot market, due to the usual spike in domestic demand for diesel during summer, before resuming spot exports in July.

In the rare term tender issued on Monday, Essar Oil offered a maximum of 70,000 tonnes a month of 500 ppm sulphur diesel for loading from Vadinar over August to October.

The tender closes on Thursday, the sources added. This is probably the first time Essar Oil has offered diesel through a term contract, one of the sources said, although company officials could not be reached for confirmation.

Essar Oil started exporting diesel regularly in the spot market again from September last year, following a two-year hiatus, after upgrades to its refinery boosted diesel supply.

Essar Oil completed an upgrade to its refinery in June last year, raising its capacity to 405,000 barrels a day, accounting for about 9 percent of India's refining capacity, and also raising the unit's complexity to handle cheaper, heavier grades.

The refinery produces about 9 million to 10 million tonnes of diesel a year and is able to produce Euro-V compliant fuel.