Should you buy crude oil after gaining 30% in the last two months?

One of the greatest trades during the summer months was being long WTI crude oil. Oil prices advanced approximately 30% in two months – an impressive run, no matter how you look.

Long oil (i.e., expecting the price to keep increasing) is not fashionable for various reasons. One of them, for example, is the electric vehicle adoption and the decreased dependency on oil as governments struggle to fight climate change.

Some may think it is about the US replenishing the Strategic Petroleum Reserve (SPR). After all, oil prices rose to $85 during the summer, coinciding with SPR levels increasing the most since the COVID-19 pandemic.

So that is that.

But another take, albeit an unpopular one, is that oil prices did not keep up with inflation. An article in Forbes published at the end of August called for investors to see this chart below.  

It calls for crude oil prices to jump to $300 on simple math based on inflation levels. According to the author, $1 back in 2005 is worth $1.57 in 2023. More precisely, one needs 57% more money today to buy the same stuff as in 2005.

Is $300 crude oil impossible?

Not at all. After all, crude oil demand holds near all-time highs.

The US dollar might be the reason for a jump in crude oil prices. In any case, the technical picture favors more upside for at least two reasons.

First, there was little follow-through since the double top the market formed in 2022. Second, a reversal triangle just ended during the summer.

Such triangles appear at the end of complex corrections – typically, fully reversed ones. Hence, the first step bulls need to see is a move above the $100 pivotal level. The dollar must be under pressure on such a move.

From there on, oil prices will likely take their lead from a weakening dollar.