Feb. 28 (Bloomberg) -- Crude oil rose above $102 a barrel to a record in New York after the U.S. dollar dropped to an all-time low against the euro for a third day, prompting investors to buy commodities as an inflation hedge.

Declines in stocks and the dollar after the U.S. economy grew less than economists forecast in the fourth quarter fanned speculation interest rates will fall, stoking inflation. Increased investor demand for oil coincided with reports of a drop in Nigerian production, disruption of shipments from Iraq and a fire at a U.K. gas terminal.

``All the crude oil available is being vacuumed up by investors, in part because interest rates are low and there's no alternative to commodities that looks very good,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``The fall in the dollar also attracted funds.''

Crude oil for April delivery rose $2.95, or 3 percent, to settle at $102.59 a barrel at 2:45 p.m. on the New York Mercantile Exchange, a record close. Futures rose to $102.97 a barrel, the highest since trading began in 1983. Prices are up 66 percent from a year ago.

Firefighters doused the blaze at Royal Dutch Shell Plc's Bacton terminal in the U.K., which handles natural gas flowing from the North Sea into Europe's biggest gas-consuming country. A fire erupted in the water-treatment plant at Shell's terminal, according to a recorded message by the Norfolk Fire Service press office today.

Brent crude for April settlement rose $2.63, or 2.7 percent, to $100.90 a barrel on London's ICE Futures Europe exchange. Futures reached $101.10 a barrel, the highest since trading began in 1988.

``Inventories are still too low so if there's a problem anywhere in the system we are susceptible to upside price moves,'' said Adam Sieminski, Deutsche Bank's chief energy economist in New York.

Nigerian Disruption

Eni SpA said there was a ``small'' disruption to its Brass River crude-oil production in Nigeria, denying there was a militant attack that cut output. Four traders of West African crude oil said earlier today that output was cut following an attack. Production was reduced by 50,000 barrels a day to around 120,000 barrels a day, one of the traders said.

The flow of oil from northern Iraq may be interrupted until tomorrow because of a glitch at a pumping station, Reuters reported.

``There's been news from high-risk areas today, which the market has to take seriously,'' said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``During the first month of the year, the focus moved to demand and what impact the U.S. economic slowdown would have. Supply worries took a back seat, which is rare.''

Commodity Rally

The UBS Bloomberg Constant Maturity Commodity Index gained as much as 1.7 percent to 1506.707 today, the highest ever. Gold, platinum, wheat and soybeans have all been pushed to records this month.

``Part of what we are seeing is a move to commodities because the returns have been better than with equities and bonds,'' Sieminski said.

The U.S. currency touched $1.5229 per euro, the weakest since the common currency's 1999 inception, before trading at $1.5205 at 2:30 p.m. in New York.

``The size of the crude-oil market is still relatively small compared to the currency, bond or stock markets, so it doesn't take much of a reallocation of funds to have a major impact,'' Evans said.

Fear is driving the rally in oil prices and OPEC could bring down prices with an oil release, said U.S. Energy Secretary Samuel Bodman. The Organization of Petroleum Exporting Countries should take steps to cut prices for its own good, he told reporters today in Washington.

`Fear Level'

``The price that we are now seeing would indicate a certain fear level on the part of the marketplace,'' Bodman said. ``It is important that the members of OPEC for their own sake carefully look at supply and demand.''

Ministers from the 13 members of OPEC are scheduled to meet in Vienna on March 5 to discuss oil quotas. OPEC produces more than 40 percent of the world's crude oil.

``I expect OPEC to leave output unchanged,'' Shokri Ghanem, chairman of Libya's National Oil Corp., said by phone from Tripoli. ``At this point, there is no reason to do anything.''

Oil extended gains after an Energy Department report showed that U.S. supplies of natural gas, a competing fuel, fell more than average for this time of year. Inventories declined 151 billion cubic feet to 1.619 trillion cubic feet last week. The average change for this time of year is a decline of 141 billion cubic feet, according to department data.

Cold Weather

Cold weather in the northern U.S. has bolstered consumption of natural gas and heating oil, the two most-used heating fuels.

Natural gas for April delivery rose 38.3 cents, or 4.2 percent, to $9.443 per million British thermal units in New York. Futures touched $9.498, the highest since Feb. 1, 2006.

Heating oil for March delivery rose 7.45 cents, or 2.7 percent, to $2.8456 a gallon in New York, the highest closing price since trading began in 1978. Futures reached $2.8562, a record intraday price.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: February 28, 2008 16:43 EST