TOKYO: Oil rose for a third straight session on Wednesday, to above $117 a barrel, on growing worries that Tropical Storm Gustav may threaten oil and natural gas installations in the Gulf of Mexico.

Dollar weakness and tensions between Russia and the West after U.S. President George W. Bush condemned Russia for recognising breakaway regions in Georgia also supported prices.

Crude for October delivery rose 86 cents to $117.13 a barrel by 8:39 a.m., after settling up $1.16 on Tuesday. London Brent crude rose 79 cents to $115.42 a barrel.

Masaki Suematsu, analyst at broker Newedge in Tokyo expected oil to head towards last week's near-three-week high just above $122 a barrel over the next several days depending on weather in the Gulf of Mexico.

"Gustav is headed right toward the centre of the Gulf of Mexico. Hurricanes taking this route are usually threatening," he said,

Gustav was downgraded to a tropical storm on Wednesday after it slammed into Haiti on Tuesday, but forecasters expect wind speeds to regain hurricane force, and it could be the first major storm to threaten oil and gas production in the Gulf of Mexico since 2005.

Royal Dutch Shell, the largest oil and natural gas producer in the region, said it would begin evacuating non-essential personnel from offshore facilities on Wednesday if the storm's forecast remains unchanged.

Three years ago, Hurricanes Katrina and Rita crippled production in the region that produces a quarter of U.S. crude oil and 15 percent of its natural gas.

"I'm afraid (Gustav) could potentially cause an impact similar to hurricanes Katrina and Rita, although I certainly do not wish such things," said Tetsu Emori, a fund manager at Astmax Co in Tokyo.

STOCKS, POLITICS AND THE DOLLAR

The dollar fell against the euro, after hitting a six-month high the previous day when German business morale slumped to multi-year lows and reinforced views the European Central Bank will eventually cut rates.

The latest in the war of words between Russia and the West, also supported oil.

U.S. President George W. Bush on Tuesday condemned Russia's decision to recognise Georgian rebel regions as independent and accused Moscow of escalating tensions with an "irresponsible decision".

Traders also focused on the latest oil inventory data from the U.S. Energy Information Administration, due at 10:35 a.m. EDT (3:35 p.m.).

An expanded Reuters poll of analysts showed an average forecast for a 1 million-barrel rise in U.S. crude stocks and a 500,000 barrel build in distillates.

Gasoline inventories are projected to fall 2.9 million barrels, a fifth straight weekly decline, as refiners were seen drawing down inventories of summer-grade gasoline.

On Tuesday, the EIA reported U.S. oil demand in June fell 5.6 percent from a year ago.

But other data suggested signs of a slight recovery in gasoline consumption. U.S. retail gasoline demand rose 1.3 percent last week as average gasoline prices dipped below $4 nationwide, MasterCard Advisors said on Tuesday.