I agree 100%

Obviously I agree that the demand curve shifted as the housing industry destructed this is demand that will not return in the foreseeable future.

For all kinds of reasons this is very much a one off event. Surprisingly is one of the few large industries that we really don't have to have.

Other forms of demand may have declined with high prices but its sensible that low prices will spur demand that was simply suppressed because of price alone.

Demand destruction i.e a downward shift in the demand curve for individuals is difficult to prove as long as those individuals have jobs. Its safe to say that a steady increase in unemployment numbers represents a aggregate shift of the demand curve downwards that insensitive to the price of oil. Just like my demand for a new Ferraris remains zero even if they slashed the price by 50% or a crappy house in CA for that matter. Increasing rates of unemployment is one of the few ways that demand for gasoline absolutely drops regardless of price.

Short of dropping quickly into and all out full blown depression its difficult to come up with another major shift in the demand curve as what occurred with the demise of the housing industry.

As and example the other big bubble of the past decades is agricultural land prices as this bubble is probably popping with a vengeance right now. Does it lead to a shift in the demand curve for oil ? Well probably eventually since land is used as collateral for loans to plant at some point crops grown will decline and the demand for oil from agricultural will decline but a big driver in this would be if oil prices continued to increase increasing planting costs faster then agricultural land prices collapsed. So probably its a combination of both that would cause this industry to use less oil but its highly doubtful it will result in low oil prices.

You can do the same for the airline industry or practically any industry you pick and its doubtful that low oil prices are the outcome.

The one case that stands out that stand out remains a fast depressionary collapse and I'd argue that high oil prices are better than this solution at first glance.

Given the willingness of the Central Banks to intervene in the economy and the fact that the populace has no problem taking on tremendous debt that will never be repaid I'd argue that instead of a fast collapse primarily from the financial industry collapsing we instead will see oil prices rebound and go ever higher and the feds keep attempting to pump the economy only slowing the collapse rate and building a ever larger mountain of debt. High oil prices will pay a key role in grinding down the economy and indirectly lead to ever higher unemployment making ever greater economic intervention required.

This is the slow route but slow is relative a fast financial collapse if it was to occur is probably less than a year away will a slow collapse with high oil prices allow the economy to collapse over a period of 4-5 years with the debt load eventually leading to a financial collapse not seen in modern times.

Since peak oil is not recognized by the mainstream everyone seems to have chosen option 2 under the believe that we can successfully inflate our way out of this somehow.

Probably overall a fast financial collapse now is probably the best long term solution since it leaves most of the system intact and the resource base in place to do something different. And GW, peak oil, overpopulation fiat currencies etc all the ills of today's societies arguable could be reviewed and we could probably even do something about it. The second road of continually pushing the economy only to have oil collapse it leaves us with less in my opinion.