Oil rose for a third straight session today to near $117 a barrel on growing worries over Tropical Storm Gustav, which headed towards US oil and natural gas installations in the Gulf of Mexico.
Crude for October delivery rose 44 cents to $116.71 a barrel by 0235 GMT, after settling up $1.16 yesterday. London Brent crude rose 42 cents at $115.05 a barrel.
Oil touched a high of $122.04 last Thursday, as bad weather threatens the Gulf of Mexico and helped stem oil's slide from a record above $147 a barrel hit in mid-July.
Hurricane Gustav was downgraded to a tropical storm today after it hit Haiti yesterday, killing at least two people.
But forecasters expect wind speeds to pick up again to hurricane force and Gustav could become the first major storm to threaten US oil and gas production in the Gulf of Mexico since 2005.
Computer models showed Gustav could track towards Louisiana and Texas, where rigs produce a quarter of US crude oil and 15 per cent of its natural gas.
Three years ago, Hurricanes Katrina and Rita hit the region, crippling production and flooding New Orleans.
Royal Dutch Shell, the largest oil and natural gas producer in the region, said it would begin evacuating non-essential personnel from offshore facilities today if the storm's forecast remains unchanged.
Tensions between the West and Russia over Georgia and threats by Russian president Dmitry Medvedev of a military response to the deployment of a US missile shield in Poland also supported prices.
US oil demand in June fell 5.6 per cent from a year ago, the U.S. Energy Information Administration reported yesterday, hurt by high fuel prices and the wider economic crisis.
But US retail gasoline demand rose 1.3 per cent last week as average prices dipped below $4 nationwide, MasterCard Advisors said today.
Traders also focused on the latest oil inventory data in top consumer the United States, due at 1435 GMT.
A 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.
Reuters