Goldman Sachs believes that artificial intelligence (AI) could significantly impact oil prices over the next decade, potentially driving them down. The investment bank anticipates that AI will reduce production costs and increase recoverable resources, boosting oil supply.
While AI is expected to have a substantial impact on the demand for power and natural gas, its effect on oil demand is projected to be more modest. Goldman Sachs estimates that AI could reduce the costs of a new shale well by approximately 30%. Additionally, AI-driven improvements in recovery factors for U.S. shale could potentially increase oil reserves by 8% to 20%, adding 10 to 30 billion barrels to the market.
The bank states that AI could lower the marginal incentive price for oil by $5 per barrel, assuming a 25% productivity gain for early adopters of AI technology. This could translate into a negative impact on oil prices, potentially reducing the incomes of oil producers, including OPEC+ members.
Despite the potential for AI to increase supply, Goldman Sachs acknowledges that AI could also lead to a modest increase in oil demand over the next decade. However, the bank believes that the negative impact of AI on the cost curve will likely outweigh the positive impact on demand, resulting in a net negative effect on oil prices in the medium to long term.
Recent developments in the oil market have reflected this cautious sentiment. Brent crude oil prices have experienced significant selling pressure, dipping to $77.21 per barrel on Tuesday. This decline coincides with data from OPEC indicating that 8 OPEC+ members plan to increase their production by 180,000 barrels per day, further adding to the bearish outlook.
While there has been a slight recovery from the initial lows, the overall market sentiment remains bearish, influenced by concerns about weakening demand indicators from major economies and the prospect of increased supply.
