Aug. 27 (Bloomberg) -- Crude Oil rose for a third day on forecasts Tropical Storm Gustav will strengthen as it enters the Gulf of Mexico, home to 26 percent of U.S. production.

Gustav is expected to return to hurricane status before reaching Gulf platforms, according to Jim Rouiller, a senior energy meteorologist with Planalytics Inc., a forecaster based in Pennsylvania. U.S. gasoline inventories probably fell a fifth week, dropping 2.45 million barrels, according to a Bloomberg survey before today's Energy Department report.

``The threat of storms like Gustav will prevent oil prices falling further, so we see the market supported above $110 until the end of the hurricane season,'' said Ingrid Angermann, an economist at Dresdner Bank AG in Frankfurt.

Crude oil for October delivery rose as much as $2.26, or 1.9 percent, to $118.53 a barrel on the New York Mercantile Exchange. It was trading at $118.13 at 1:40 p.m. London time. Prices are up 63 percent from a year ago.

Futures have dropped 21 percent from a record $147.27 a barrel reached on July 11. Yesterday, oil rose $1.16, or 1 percent, to settle at $116.27 a barrel.

OPEC, the producer of 42 percent of the world's oil, should maintain output when it meets in Vienna next month to help curb prices, International Energy Agency Executive Director Nobuo Tanaka said.

``We wish producers will maintain the current level of production,'' Tanaka told Bloomberg News in an interview at an oil conference in Stavanger, Norway. ``The current price level is putting a burden on the global economy.''

Dollar Drop

The dollar fell from a six-month high against the euro, bolstering the appeal of commodities as a hedge. The dollar declined to $1.4764 per euro at 1:16 p.m. in London from $1.4653 in New York yesterday, when it touched $1.4571, the strongest since Feb. 14.

Gustav was about 80 miles (125 kilometers) west of the Haitian capital, Port-au-Prince, and forecast to head into the central Gulf of Mexico by Aug. 31, the National Hurricane Center said in an advisory at 5 a.m. Miami time.

Gustav has the potential to grow to a Category 4 hurricane with winds of at least 131 miles per hour by the time it enters the Gulf, said Planalytics's Rouiller, whose clients include oil companies.

Offshore fields in the Gulf of Mexico accounted for 26 percent of total U.S. crude production and 12 percent of natural gas output in April, according to data on the Web site of the government's Energy Information Administration.

Shell, Transocean

Royal Dutch Shell Plc and Transocean Inc., the world's largest offshore oil driller, have started to scale back operations in the area before the storm approaches.

U.S. crude-oil inventories probably rose probably rose 1.1 million barrels last week from 305.9 million, according to the median of responses by five analysts.

The Energy Department is scheduled to release its weekly report today at 10:35 a.m. in Washington.

Brent crude oil for October settlement rose as much as $1.35 cents, or 1.2 percent, to $115.98 a barrel on London's ICE Futures Europe exchange. It was at $115.70 a barrel at 11:53 a.m. London time.

For Related News: News on oil markets: NI OILMARKET <GO> News on oil inventories: TNI OIL INV <GO>

Last Updated: August 27, 2008 08:43 EDT