The former Liverpool striker, 31, signed on non-contract terms in time to make his first competitive appearance for Leeds in their opening-day win over Wolves. He also stepped off the bench in the midweek defeat at Blackpool.
Warnock said: "His representatives are still talking to [chief executive] Shaun [Harvey]. I know we made an offer on Wednesday, which they were mulling over.
"I don't think it's a money situation with him. He's made a lot of money over his career really and that's why I'm saying to him that I think this is the best club for him now because of the crowds and stadium.
"Where's he going to get anything better than this at this stage of his life? I think he's enjoying every minute and we'll see what happens."
Senegal international Diouf's former clubs in England also include Bolton, Blackburn, Sunderland, Rangers and Doncaster.
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