Great post Dan. I was not going to bother adding to the conversation as in 1999 I failed to convince friends and colleagues that we were in a bubble and I knew a lot more about that topic than I do about oil.
However, seeing the work you have clearly put in I feel compelled to do some myself. I’ll get to that soon, but first some comments and philosophy.
• First off I have no opinion on when oil prices will crater and I am not foolish enough to be 100% certain that when they do crater that the ensuing price bottom will be lower than the current price of $126, http://www.bloomberg.com/energy/
• Secondly I am a believer in plethora of momentum mantras like the trend is your friend and don’t fight the tape. The trend in oil, hard and soft commodities is totally clear to every single person on this planet. The trend is up.
• Thirdly, I have profited from the commodities wave and continue to have some exposure to it.

For those daunted by the length of my post then here is the gist of it. Investors, especially those late to the party, always confuse fundamental trends with price. Commodity demand is likely to increase and commodity supply may have peaked, but you must separate that from price.
I apologise that I have not edited the following.

Population
Forecasters are notoriously wrong, but with no other resource I will rely on them. Yes there has been rapid population growth, but as with any trend extrapolating that in to the future is unreliable. The reality is since 1980 the rate of growth has slowed. From US Census Bureau data the average annual rate of worldwide population growth has fallen from 2.0 in 1970 to 1.2 now and is predicted to continue falling to 0.77% for this first half of this century. As an aside the world population did not hit 1Billion until the 1800s and was a mere 100M in 500BC. Growth is predicted to continue falling and the earth’s population will supposedly crest around the middle of this century at between 9 – 10B.
Sustainability
Planet earth can clearly not sustain 6B people who consume resources like Westerns. However, with a cradle to cradle philosophy this planet could sustain 10Billion people. Although the US is resiting change, sustainability is building into a massive worldwide wave. It will fundamentally change our consumption and attitudes over the coming years and decades. The data presented by bozob, may indicate that the US is already starting to change its consumption patterns.

Now let’s look at the valuation of Oil
How do we do this? It’s not as easy as looking at skyrocketing P/E ranges and realising that we’re in a internet bubble and strangely many if not most people were unable to even do that. Oil provides energy. The simplest way to value it is comparatively to other source of energy. When you do this oil already appears overvalued and that is despite the skyrocketing prices of oil and coal. Yup, I just made that up and planned on doing the work to confirm it, but out of time.

Predictions for Oil
Most predictions are for 2-2.5% annual growth in oil consumption for the foreseeable future.
“World liquids consumption in the IEO2007 reference case increases from 83 million barrels per day in 2004 to 118 million barrels per day in 2030.”
Now I see no point in arguing whether they are right or wrong, but do believe it is folly to base investment decisions on prognosticators opinions, when predictions are notoriously inaccurate. Further as I’ll discuss below this is exactly the wrong king of information to focus on at this late stage of the commodities investment cycle.
Where is Oil Used
Two-thirds of the above increase is projected for use in the transportation sector.

A Roadmap for Survival
I profited from and survived the internet bubble. While numerous people would like to assert that anyone claiming this is not being truthful, I always laugh and remember, what you say about others is a reflection on you not on them. If you didn’t survive the bubble or if you weren’t investing then I hope this is of some use. What follows is part of my philosophy, it is right for me, but may not be right for you.

Investing is about riding waves and while it would be good to get on the wave earlier and off just before it crashed it I have never been that good a surfer. I get on waves when I spot it is a wave and I tend to get off them earlier or at knell down and then ultimately lie down on the board. That’s just words so let me try to flesh it out with my investing in the tech bubble and later in commodities.

The Tech Bubble
I was in the tornado. I worked for SAP, friends worked for Oracle, Ariba and other smaller companies. I began investing in technology, primarily SAP, in late 1994 and over the next four years to early 1999 poured the ludicrously large pay rises I received into a house, tech, biotech and other non-tech companies who I consulted to. Early in 1999 I started to believe the markets were overvalued and the Y2K was a load of crapolla. I didn’t come up with these ideas, I heard them being whispered by others and I looked around me and I believed they were the most probable truths. During the year I was further convinced as friends who knew I had been investing for a dozen years and that I was involved in technology wanted to know which companies they should invest in to double their money. That is one of the keys to any market top. You may think that you know that, but I believe from the posts I am reading that many have not reached that watershed moment of truly understanding it. I’m not trying to be arrogant, in fact arrogance comes so naturally to me that I spend a lot of energy trying to fight, suppress and hide it.

When your friends start talking about investing in commodities become very concerned, when your friends or worse yet taxi drivers start telling you who or how to invest in commodities start freaking out. This concept is so simple and so fundamental to investing that most people dismiss it as obvious and a waste of typed words. Yet, many of those same people lost 70-90% of their capital in the tech bubble. I’m sure you all know why it marks a market top when you friends and strangers are talking about it and some of you have no doubt read more recently on the topic than I. Simplistically it’s because there is no-one else left to buy. If you are starting to think, but commodities are different they’re real and demand will grow I’m 100% sure of then well gee how do I say it, you a lost case, wake up before you your capital eviscerates.

For those who believe it is different this time please think about this and from the replies my simple question got it is clear to me that despite denials many of you think it is different this time. Almost every fundamental technology growth prediction that occurred during the tech bubble has proved to close enough to correct. Internet usage, page-views, on-line shopping, digital transition etc etc have all clearly followed the predictions. They were right on the fundamentals, but the problem was people confused the fundamentals with the price.

The Commodities Bubble
Why are we even having this conversation know? That’s right as bozob and then qazulight presented some hard facts that American’s may already be embracing a future not dependent on oil, http://boards.fool.com/Message.asp?mid=26634077&sort=whole . Points which appear to have been too readily dismissed. I asked why are we having this conversation now as I thought this board was a pace to discuss new investment ideas rather than ideas already eight years old.

The smartest commodity investors started buying around 2000. Warren Buffett bought PetroChina in 2003. I began investing, this time around, in commodities in 2004. At that time I had just returned to Australia and the commodities boom was so obvious as the streets were all but paned in gold. Australia was awash with cash from commodities and yet only a few people were discussing commodity investing. I sold most of my commodity stocks in 2005/2006 as I thought they were becoming overvalued and needed the money. Buffett sold PetroChina in 2007. He is clearly better than me at riding waves. I did hold on to one oil company which I thought had 10 bagger potential and it was a small investment, unfortunately it has yet to prove my thesis and my patience is running out. I recently invested in what I considered a safe and sensible commodities play. I posted about this on the Liquid Lounge http://boards.fool.com/Message.asp?mid=26402638 . Since posting that, one of Australia’s most popular investment newsletters, The Intelligent Investor, has written exactly the same thesis which I believe is responsible for putting a bottom in on the price. I’d posit that no-one followed my recommendation despite the exchange rate benefit US investors are likely to achieve on top of the likely returns. Why? Cos it is a boring conservative idea, I’m a poor writer, poor salesman, you don’t know me from Jack, take your pick. My point is that it all comes down to price. Forget your fundamentals and just ask yourself:
• Is the current price a good one?
• Am I early or late to this wave?
• What are smarter investor, that’s Buffett not me, doing.
• Could I be the last fool holding the bag?

Are bubbles based on reality or fantasy?
With the benefit of hindsight it is possible to suggest that previous economic bubble did not have a real root cause. I guarantee at the time there appeared to be real root causes. There were highly rational arguments why Japanese economic expansion would continue indefinitely, why ludicrous internet related prices were plausible, why US property prices could continue their unsustainable surge. There have been very few manias based on fantasy. The mostly had some sort of real root. The problem is the majority of market participants fail to realise that they are focusing on the root cause and not price.

Can you be sure a massive shock or incremental changes will change the current equation?
I doubt I’ll change anyone’s opinion. Just like in 1999 I’ll probably be perceived as wrong for the foreseeable future and that’s fine with me. I just hope like Dan sensibly said that you have some sort of stop mental, trailing or fixed in place.
• A worldwide recession?
• A war, whether energy, hard commodity, soft commodity or religion based.
• The US reducing it’s consumption to even the level of other Western countries. Each U.S. citizen consumes 0,067 bpd versus 0,0055 bpd in China.
• Unknown event?
• Higher oil prices leading to higher adoption of LPG, liquefaction of coal etc.
• US dollar about face.

In isolation none of these things appear to be able to tip the long term balance, but a plausible argument can be made that numerous shocks and changes along with increasing supply say from Iraq and oil sands could provide enough breathing space while the world adapts to the handles seven and ultimately 9-10B people.

Supply and Demand
Lots of people don't believe in super cycles, but to me it is simple economics and the pattern repeats over and over again. It is called supply and demand. At the moment resources are in high demand and supply is in short demand so prices are shooting higher. The higher prices lead to increased exploration and development. It takes many years to develop mines, wells etc and even longer if you have to discover them first. When the current resources under development start to come on line then the supply will increase and prices will start to fall. Eventually so much supply comes on line that there is over supply and prices start to quickly fall. Exploration stops, development stops, some mines and wells are uneconomical at the lower prices and are closed. Slowly supply become tighter and tighter and then demand begins to outstrip supply and off the cycle goes again.

Can you make money investing in commodities now?
Absolutely the most likely scenario is that you can. It is at times like this that the fastest profits are made. The Nasdaq doubled from when I started to sell down. BHP and Rio have doubled since I sold them and people are still predicting they’ll double. Money can be made incredibly quickly at this point and the pressure to invest is phenomenally strong. I am absolutely certain that price will peak and hopefully you know that too. The only thing you need be concerned with is will you be the one holding the bag and worse will you cling on to the bag as it sinks like a rock because you’re 100% positive that demand will continue to rise and supply decrease. If you seriously think the world can sustain oil at 2-4 times current prices then we’ll most certainly have to agree to disagree.

If you agreed with Mike’s comment “At least for me, I'm certainly not saying anything is different. Higher demand and lower supply... those have been going on forever. Prices will rise; I am 100% certain of that.” Then you probably stopped reading this post long ago. I don’t want to single Mike out, as he is one of my most respected Fools, but when anyone says they’re 100% certain that future prices will rise when that price has already increased five fold in five years and doubled in the last year, then warning bells go off in my head. Further when the poster says they not saying it is different this time, but then focuses on fundamentals and extrapolate that to a 100% conviction on price direction I don’t know whether to laugh or cry. That may sound rude, I’m not 100% sure, but fork me a really think a wake up call is needed.

Where do I think we are in the cycle?
Well the number one type of fund currently being marketed is commodity based; oil, gold, hard and soft commodities. My friends have been talking about investing, but I am yet to have one of them or a stranger tell me how to profit form this trend. So close, but no cigar yet.

Where do I think you should be looking for investment opportunities now?
In energy I have been looking at Chesapeake (CHK) http://finance.yahoo.com/q?d=t&m=w&s=chk as MDC keeps banging on about it on the Liquid Lounge and gas does still seems relatively inexpensive . Solar and alternative energy companies are another field I’m very interested in, but can’t recommend any companies right now. I did post about buying Suntech STP on this board back in March when ti was around $30 http://finance.yahoo.com/q?d=t&m=w&s=stp and if it becomes cheap again I’ll try to post. Biofuels are probably an easy short, but that is just form a fundamental perspective I haven’t looked at price. Companies that deliver revolutionary energy changes are well worth keeping an eye out for, there are companies getting very close in this field I posted about one on Pencils board once upon a time.

Please don’t think I make all the right calls, as if you would. I would have been appreciably better off to have sold US based assets in 2005/2006 rather than my Australian based commodity assets. I underperformed the markets in 2007. I make heaps of mistakes and am seldom close to the peak or trough on anything. However, by making enough right calls in life and avoiding any really bad major ones (I’ve made plenty of really bad small calls), I’ve done alright. All you need to do is make a few good calls and don’t ever believe the hype.

Dan, if your bet is that oil prices will be four times inflation adjusted USD higher in seven years times then I'll take it. If you are investing 100% of your funds in that belief then I'll have to insist you deposit the bet with a third party :-)

One final final question. With all the investing opportunities out there, why do people feel the need to invest in what may be a bubble? Oh , that's it, you're 100% sure it isn't.

Resources
http://www.overpopulation.com/faq/projections-of-future-world-population/
http://www.eia.doe.gov/oiaf/ieo/oil.html
http://www.un.org/esa/population/publications/longrange2/WorldPop2300final.pdf
http://en.wikipedia.org/wiki/Economic_bubble
http://spilpunt.blogspot.com/2007/03/oil-and-natural-gas.html
http://www.gravmag.com/oil.html
http://en.wikipedia.org/wiki/Petroleum#Consumption_rates
http://www.bloomberg.com/energy/