Impact of AI on Oil Prices

(Reuters) – Artificial intelligence (AI) could negatively affect oil prices over the next decade by increasing supply through cost reductions in logistics and enhancing recoverable resources, as indicated by Goldman Sachs on Tuesday.

Importance of the Issue

The influence of AI on energy and metals has largely concentrated on demand, anticipating a rise in power consumption. This reduction in oil prices could harm the revenues of oil producers, especially the members of the Organization of the Petroleum Exporting Countries and allies (OPEC+).

Key Quotes

Goldman Sachs noted, “AI could potentially reduce costs via improved logistics and resource allocation … resulting in a $5/bbl fall in the marginal incentive price, assuming a 25% productivity gain observed for early AI adopters.”

Goldman anticipates only a slight increase in AI’s influence on oil demand compared to the effects on power and natural gas over the upcoming decade. They stated, “We believe that AI would likely be a modest net negative to oil prices in the medium-to-long term as the negative impact from the cost curve (c.-$5/bbl) would likely outweigh the demand boost (c.+$2/bbl).”

By the Numbers

Goldman Sachs estimates that up to 30% of the costs associated with new shale wells could potentially be cut through AI. Moreover, a 10% to 20% boost in the low recovery factors of U.S. shale could elevate oil reserves by 8% to 20% (10-30 billion barrels).

Current Context

Recently, Brent crude futures fell by $3.51, or 4.5%, to $74.02 a barrel, marking the lowest price since December. Similarly, West Texas Intermediate crude futures saw a decrease of $2.97, or 4.1%, to $70.58, also the lowest since January.

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