Oil surged more than 3 percent to an all-time high on Thursday after news that a fire struck a major European natural gas terminal.

Record weakness in the U.S. dollar encouraged oil's gains, fueling a broad commodities rally.

U.S. crude surged $3.10 to $102.74 a barrel by 2:07 p.m. EST, breaking the inflation-adjusted high of $102.53 reached in 1980. London Brent crude gained $2.83 to $101.10 a barrel.

News that the fire hit the Bacton natural gas terminal in Norfolk, England, where the Interconnector pipeline links Europe with the United Kingdom, accelerated oil's gains late Thursday.

Oil rose earlier as investors continued to pump cash into commodities weeks as a hedge against inflation, betting the U.S. Federal Reserve will keep cutting rates to prop up the struggling economy of the world's top oil consumer.

The energy complex is a dollar/inflation story as investors have moved into commodities as a hedge against inflation, said Nauman Barakat, senior vice president at Macquarie Futures USA.

The ever-weakening dollar, upward inflationary pressures and geopolitical tensions are having a greater impact on the market than the fundamentals.

Federal Reserve Chairman Ben Bernanke said the United States would avoid a 1970s-style period of stagflation but acknowledged global price pressures could complicate central bank efforts to lift the economy.

The U.S. dollar dropped to an all-time low versus the euro after Bernanke's testimony did nothing to dispel expectations that interest rates are headed lower.

Also, the latest estimate of U.S. fourth-quarter gross domestic product came in weaker than analysts had forecast, and a report showed a big jump in initial weekly jobless claims.

Prices of dollar-denominated commodities tend to rise when the currency weakens.

Expectations that the Organization of the Petroleum Exporting Countries will not raise output at its meeting on March 5 despite calls for more oil from producer nations have also supported crude prices.

Venezuelan Oil Minister Rafael Ramirez said there was no need to increase production after the head of Libya's OPEC delegation Shokri Ghanem said the cartel most likely will leave output steady.

U.S. Energy Secretary Sam Bodman reiterated calls for OPEC to open the taps as U.S. consumers struggle with the effects of rising energy costs, the mortgage crisis and the credit crunch.

OPEC ministers say prices are rising on speculative buying, and insist global supplies are ample to cover demand.

U.S. crude oil stocks rose for the seventh straight week last week, according to U.S. government data released Wednesday, while gasoline stocks are at 14-year highs.

In terms of fundamentals, it's hard to justify the ferocity of the market's rally, said Robert Laughlin of MF Global. The weakness in the U.S. economy is now affecting demand.

(Additional reporting by Richard Valdmanis in New York; Alex Lawler in London; Editing by Marguerita Choy)