Here’s a contrary notion: while not many outside of OPEC, Venezuela and I guess anyone in the oil business wants to see oil and fuel prices well north of $100 again, is it probably good to have it continue here over $50 and maybe even rise to $65-$75 or so a barrel?

Interestingly, it wasn't that long ago when $50 seemed high, whereas now it appears almost a bargain. In January 2007, the price of crude futures was about $53, approximately where it is right now. From that point, it made a steady rise for the rest of the year, but as late as June, the price was still in the high $60s, though we broke $70 late in the month. By the end of the year, we hit $95, and the path was up and then up some more right through the peak in July 2008. Okay, so here are some reasons various parties might like to see oil stay at least where it is right now and maybe even move a bit higher:

• Rising oil prices are generally seen right now as good for the stock markets, and we could all use some assistance for our 401Ks. The view is that rising prices signals improved economic prospects, and will help us avoid a devastating period of deflation.
• Lately, I have heard a number of oil industry experts say that they are not worried right now about oil demand destruction, but rather oil supply destruction. Most believe the drop in demand is temporary. However, at these prices, many planned or potential oil development projects don’t make sense, ultimately contracting supply.

I heard one reputable analyst say that a fair market price right now, given what it takes to produce a barrel of oil, is about $65 per barrel. Below that, investment in finding/exploiting new reserves makes less sense and may even be a poor investment. A number of the big oil companies have already announced cut backs in planned exploration and development. But getting these projects started back up is harder than shutting them down and, as a result, it’s possible we will be back in the 2008 price soup before too long if the global economy does recover in 2010.

Higher prices result in more attention, focus and investment in supply chain and logistics. Yes, this is self-serving, but frankly for most of us, whether you are a practitioner or a software vendor, rising oil prices at a personal level are in a sense a good thing. In the past few years, for example, sales of Transportation Management Systems have soared, and the market for skilled Logistics/Transportation execs and managers was probably the best it has ever been.

So, while it's great when stopping to buy gas for your car or looking at corporate transportation budgets to see oil prices down at the $35 range, I don’t think we really want to go there. A gradual move over the rest of the year to the $65 per barrel range or so is actually what makes sense to me.

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