Oil closed up $1.65 to $100.88 Tuesday -- a new record-high print close -- as traders piled into the world's most vital commodity on the belief it will serve as an inflation hedge if U.S. inflation accelerates this year.

Oil had hit an intra-session high of $101.11 earlier in the day before pulling back slightly. (Oil hit an all-time high, in inflation-adjusted terms, of $102.80 per barrel in April 1980.)

Energy commodities close up

The other major energy commodities also closed higher. Heating oil gained about two cents to $2.79 per gallon, unleaded gasoline climbed about one cent to $2.54, and natural gas gained about one cent to $9.19 per million BTUs.

Independent energy trader Jim Dietz told BloggingStocks Tuesday that the market is not taking into consideration oil's bearish fundamentals, which show rising inventories in several key categories, but is trading more on psychology: namely, ambition.

"Right now it's 'pick an oil long, any oil long.' The market is trading on speculation, and on fear that OPEC may cut oil production during its March meeting," Dietz said. "This market strains all logic. Can you imagine getting stopped-out with an oil short contract at $99.70? You short oil at $99.70 per barrel, which would have been considered a ridiculously high price just a couple years ago, and you're stopped out." Dietz said he was not the trader that was stopped out and is currently flat, with no open energy positions.

Hedge money sensed

Dietz said oil traders felt the impact of hedge fund and money fund managers establishing positions today, some of which were probably inflation hedges. "You can always sense it when the hedges arrive because you get these jolts to the market one way or another," Dietz said. "Right now, oil is one of the asset classes of choice, so there's likely to be upward pressure on prices short-term."

Dietz said there was also some chatter "about OPEC making an effort to cut production ahead of their March meeting, which may or may not be accurate."

OPEC president Chakib Khelil told Reuters Tuesday OPEC has no plans to increase production. "I can tell you they are not going to increase production because there are plenty of stocks," OPEC President Chakib Khelil told Reuters in the Nigerian capital Abuja.

OPEC's view

OPEC remains concerned that a U.S. economic slowdown and the annual Q2 quarter drop in demand -- the spring quarter is oil's lowest demand period as the northern hemisphere heating season ends in May -- will lead to a price collapse. Dietz said OPEC's argument contains an element of truth, but the cartel is not telling the whole story.

Dietz said if inventory fundamentals and current demand were the only factors in the market, oil would trade around $75-80 per barrel, and probably lower. However, inventory fundamentals rarely tell the whole story in the oil market, he said, as evidenced by factors that have affected oil's price for the past week (inflation concerns, speculation).

Further, Dietz also agreed with the view of many economists that OPEC's efforts to keep oil's price high due to a weak dollar are counterproductive because high (or rising) oil prices will simply drive the dollar lower. "At some point OPEC is going to realize that higher oil prices are self-defeating, from a purchasing power standpoint," Dietz said.

In addition, OPEC's concerns about a possible price 'collapse' strike Dietz as disingenuous.

"OPEC talks about this 'collapse.' Collapse? Collapse to what, $80 a barrel? That's not a collapse, that's still an enormous price for crude oil," Dietz said. "Five years ago, if you had told someone the price of oil would be at $70 per barrel, they would have called it an unreasonably high price, and one that would harm the global economy. Hopefully OPEC will begin to see that line of reasoning soon."