I want to partially answer a very nice comment from Tech Guy here. The main concern here is that we probably passed the peak of oil output back in 2005 and it seems that we will never ever reach the same output as it was two years ago.

It seems like it’s true. But let me to point out at the supply-demand part of the equation. I think for this economic cycle the oil bull market is almost over. It will probably do the last hoorrah run to $110 and then we’ll go into the bear market and I think oil will go as low as $50. Consumption will be pretty low. Lets talk about the next cycle.

We have all kind of oil depending on its price. I think we have only few months left of $50 oil and few years of $60 oil. (All prices are in current dollars, inflation adjusted for the future).

We probably have another 10 years of $70 oil and 20 years of $90 oil. But when the price goes up the consumption period will extend. I think we have at least 50 years of $150 oil and maybe 200 years of $200 oil. That (250 years) should be enough to finally come with fusion power. Nice job for our grand-sons 🙂

What $150 oil means to us? I think we don’t need to go far for examples. The whole Europe is effectively living in the $150 oil for the last 5-10 years. The $6-$8 price per gallon is pretty much what it means. As far as I (and you) can see Europe is doing just fine. And I think we’ll be doing fine, after the coming economic crisis will make all the necessary adjustments.

Of course the low and middle-class people will not commute 20+ miles anymore. The suburbia will be left to upper middle class and most people will just move close to work. Believe me, it’s absolutely nothing wrong in living in the apartment in the 20 story apartment building and using mass transit for a short 3-5 miles commute to work. A billion of people is living like that and our population will live like that as soon as in 20 years. The upper mid class will still occupy the suburbia, but they will move closer to work, maybe 10-15 miles, no more than that. The railroads and 40+ miles/gallon cars will provide perfect and affordable transportation. As another alternative a short 3-5 miles trip to the nearest park-and-ride facility will do the job. Of course the bear market in suburbia real estate will continue as long as I see from now and going forward. A lot of homes will have to be abandoned and owned by Chinese and Middle-East investors.

I’m not pessimistic at all, oil has to be expensive and it will be, we will adopt perfectly well, we will just live differently