* Oil up for third day
* Storm Gustav could gain strength
* U.S. data shows unexpected rise in crude oil stocks
(Adds U.S. data, analyst comment, updates prices)
LONDON, Aug 27 (Reuters) - Oil rose for a third day on
Wednesday, boosted by the possibility that Tropical Storm Gustav
could threaten Gulf of Mexico oil and gas installations, as well
as data showing an unexpected fall in U.S. crude oil stocks.
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Crude for October delivery <CLc1> was up $2.23 at $118.50 a
barrel by 1501 GMT, after settling up $1.16 on Tuesday. London
Brent crude <LCOc1> was up $1.85 at $116.48 a barrel.
"Before the data, the energy markets were already up because
of the storm and so the EIA numbers have not made much of an
impact, although crude inventories being down was a bit of a
surprise," said Phil Flynn, analyst at Alaron Trading.
Data from the U.S. Energy Information Administration showed
crude oil stocks in the world's top energy consumer fell 100,000
barrels last week, when analysts had predicted a rise of 1
million barrels.
Gasoline stocks fell 1.2 million barrels, less than
forecasts for a 2.9 million barrel fall. Distillate inventories,
which were expected to rise by 500,000 barrels, were unchanged.
Oil could head towards last week's near-three-week high of
just above $122 a barrel depending on the weather in the Gulf of
Mexico, said Masaki Suematsu, analyst at broker Newedge in
Tokyo.
"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 came ashore in Haiti, but forecasters expect wind speeds to
regain hurricane force. []
Most computer models used to predict hurricane paths showed
Gustav headed towards Louisiana and Texas, where rigs produce a
quarter of U.S. crude oil.
"Between now and the weekend, we could see crude prices
encounter a fair measure of support, as the uncertain path of
the storm generates the usual consternation," said Edward Meir
of broker MF Global.
Some oil companies have started evacuating crews from
operations in the U.S. Gulf of Mexico. Shell Oil Co <RDSa.L> and
BP <BP.L>, for example, have said they are evacuating
nonessentialworkers from the Gulf, but offshore production was
unaffected. []
Three years ago, Hurricanes Katrina and Rita crippled
production in the region.
U.S. dollar weakness, which has contributed to oil's record
run this year, provided support to the market. The U.S. currency
fell against the euro, after a six-month high the previous day.
Tensions between Russia and the West escalated after U.S.
President George W. Bush condemned Russia for recognising
breakaway regions in Georgia. []
"We are not convinced that this crisis will be bullish for
the energy markets as any 'punishment' meted out by the West
will steer well clear of Russia's energy sector," Meir said.
Oil hit a record peak of $147.27 on July 11, propelled by
the weak dollar, investment inflows and concerns about the
long-term supply outlook.
But it has fallen back sharply since then partly in response
to increased supply from Saudi Arabia, the world's biggest
exporter and a drop in demand because of high prices.
Nobuo Tanaka, executive director of the International Energy
Agency, said Saudi Arabia's increase plus a drop in demand
especially in the United States had helped prices fall.
"The market has started responding to fundamentals," he told
Reuters. "What I expect from OPEC is to keep pumping at the same
level after the increase." []
The Organization of the Petroleum Exporting Countries is due
to meet next on September 9 to review output levels.
(Reporting by Jane Merriman in London and Osamu Tsukimori in
Tokyo; editing by James Jukwey)
