By Mark Shenk

Nov. 20 (Bloomberg) -- Crude oil rose above $98 a barrel in New York to a record close after the U.S. dollar declined to a new low against the euro.

``As the dollar falls, U.S. refiners need to bid more to compete with overseas consumers,'' said Rick Mueller, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts. ``Investors look at crude oil as an inflation hedge. The weaker dollar also cushions the effect of higher oil prices in other countries so demand doesn't take the hit you might expect.''

The dollar dropped on speculation that the Federal Reserve will lower interest rates a third time this year, which prompted investors to buy energy and metals futures. Royal Dutch Shell Plc reported a fire at an oil-sands crude production plant in Alberta, potentially cutting shipments to U.S. refineries.

Crude oil for January delivery rose as much as 51 cents to $98.54 a barrel and was trading at $98.39 at 6:13 p.m. in overnight electronic trading on the New York Mercantile Exchange. The Nymex trading day ended at 5:15 p.m. New York time, and trading for Nov. 21 began at 6 p.m.

Futures rose $3.39, or 3.6 percent, to $98.03 a barrel at 2:45 p.m. on the New York Mercantile Exchange. It was the highest close since trading began in 1983. Futures touched $98.62, matching the intraday record reached on Nov. 7.

Brent crude oil for January settlement rose $3.21, or 3.5 percent, to close at a record $95.49 a barrel on the London- based ICE Futures Europe exchange. Brent reached $95.75 a barrel on today, the highest since trading began in 1988. ``There's an assumption the Fed will run to the rescue and cut rates,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``An unintended result of the rate cuts has been oil approaching $100.''

`Worthless Paper'

Saudi Arabian officials rejected a suggestion by Iran and Venezuela to discuss ending the practice of pricing crude in dollars at an Organization of Petroleum Exporting Countries summit in Riyadh, Saudi Arabia, last weekend.

``They get our oil and give us a worthless piece of paper,'' said Iranian President Mahmoud Ahmadinejad on Nov. 18 in Riyadh. ``The dollar has no economic value.''

The dollar touched $1.482 per euro today, the lowest since the 13-nation currency was started in 1999. In U.S. dollars, West Texas Intermediate, the New York-traded crude-oil benchmark, is up 61 percent so far this year. Oil is up 43 percent in euros, 52 percent in British pounds and 48 percent in yen.

``The only thing that will deter buyers is a surprise in tomorrow's inventory report,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``The dollar is boosting prices today. Talk that OPEC might ditch the dollar doesn't help and neither does speculation that the Fed may lower rates even further.''

U.S. Inventories

An Energy Department report tomorrow is expected to show that U.S. crude-oil inventories rose 750,000 barrels last week, according to the median of 16 responses from analysts in a Bloomberg News survey. Gasoline stockpiles climbed and supplies of distillate fuel, a category that includes heating oil and diesel, fell, according to the survey.

There will be no floor trading in New York on Nov. 22 because of the Thanksgiving holiday.

``I think we are seeing an over-reaction to the drop last week,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``There's nervousness about the dollar and inventories. I wouldn't take this too seriously because volume is down on the Tuesday before Thanksgiving.''

Prices dropped 1.3 percent last week, only the second weekly decline since August. Crude oil fell more than $3 on Nov. 13 when December options expired.

Options

Bets that January crude oil won't fall below $91 a barrel and will rise above $100 a barrel were the two most active options contracts on the Nymex today.

January $91 put contracts, which represent the right to sell oil at that price, fell 59 cents to 85 cents, or $850 per contract, according to data compiled by Bloomberg. One options contract is for 1,000 barrels of oil.

January $100 call options, representing the right to buy oil at that value, more than doubled to $2.35 a barrel, or $2,350 per contract, from $1.12 a barrel yesterday.

Heating oil for December delivery rose 8.59 cents, or 3.3 percent, to $2.6901 a gallon in New York, a record close. Futures touched a record intraday price of $2.7018 a gallon today. Gasoline for December delivery rose 6.99 cents, or 2.9 percent, to close at $2.4515 a gallon.

OPEC is scheduled to discuss production targets at a meeting on Dec. 5.

Alberta Fire

The fire in Canada occurred at the Scotford Upgrader's residue hydroconversion unit at about 4 p.m. local time yesterday and was extinguished within an hour, Shell Canada said. No injuries were reported. The Alberta Energy & Utilities Board said on its Web site it was investigating the incident.

The ``majority'' of the plant's daily output of 155,000 barrels of bitumen was halted, plant spokesman Randy Provencal said in an interview today without elaborating.

Energy shares led by Exxon Mobil Corp. surged with futures prices. Exxon, the world's largest oil company, climbed $3.71 to $87.82. Chevron Corp., the second-largest U.S. oil company, rose $2.87 to $87.90.

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