Crude oil prices rose more than 5% last Friday, but they gave back some of those gains on Monday as the price for West Texas Intermediate (WTI) crude for February delivery lost about 1.5% to trade at around $56 a barrel, after posting a high of around $58.50 early Monday morning. While we have suggested before that share prices for alternative energy stocks are behaving like leveraged plays on the price of crude, there is another way of looking at what is happening.

The big picture view is that, unlike other collapses in the price of oil, the current decline is the result of a demand shock driven by a slowdown in China’s economic growth and reduced dependence in the United States on imported oil. The reasons for reduced U.S. dependence are improved fuel-efficiency in the U.S. auto fleet and fewer miles driven per person.

Michael Liebreich, chairman of the advisory board at Bloomberg New Energy Finance, said in a press release Monday that perhaps the conventional wisdom is mistaken:

The orthodox view of unlimited oil demand growth simply does not hold in a world of super-efficient engines, electric vehicles, desperate air pollution problems, and action on climate. The US economy has grown by 8.9% since 2007, while demand for finished petroleum products has dropped by 10.5%. Improvements in gas mileage and reductions in miles driven per person have had more impact on cutting US oil imports than unconventional production. The story should not be how falling oil prices will impact the shift to clean energy, it should be how the shift to clean energy is impacting the oil price.

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That is not to say that cheap oil is not having an effect on clean energy growth. For example, an earlier report from Bloomberg New Energy Finance indicated that a pump price of $2.09 a gallon will slow adoption of electric vehicles in the United States from an expected 9% of the light-duty fleet in 2020 to just 6%.

The group’s research also indicates trouble ahead for producers in some U.S. shale plays. At $75 a barrel, up to 19 shale oil regions would be unprofitable, according to the Bloomberg research. Existing wells would continue to produce as long as they are able to cover their variable costs, which Bloomberg estimates are often as low as $20 to $30 a barrel.

What matters to shale producers is how long the low prices persist. Because shale wells ramp quickly to peak production and then taper sharply, wells currently in production may not be replaced by new drilling when the produced oil no longer covers variable costs.

Bloomberg New Energy Finance’s take on what is driving the demand shock to the oil business is different, and their conclusion is essentially good news for the development of alternative energy supplies: “The [recent] collapse in world oil prices … will have only a moderate impact on the fast-developing low-carbon transition in the world electricity system.”

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