Oil prices could be affected by AI during the next ten years
Picture Credits: Vecteezy
By Pavethran Batmanathen
According to Goldman Sachs on Tuesday, artificial intelligence might lower oil prices over the next ten years by increasing supply, possibly by cutting costs through better logistics, and by raising the quantity of resources that can be profitably recovered.
With the anticipated increase in power demand, the effects of AI on energy and metals have primarily been on the demand side. Producers such as members of the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, may see a decline in their income if oil prices decline.
“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 Sachs said in a note.
Over the next ten years, Goldman anticipates a slight potential boost to oil demand from AI in comparison to the impact on power and natural gas demand.
“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) – oil’s long-term anchor – would likely outweigh the demand boost (c.+$2/bbl),” Goldman said.
AI may be able to save up to 30% of the costs associated with drilling a new shale well, according to estimates from Goldman Sachs. Furthermore, a 10% to 20% rise in U.S. shale’s low recovery rates due to AI might result in an 8%–20% increase in oil reserves (10-30 billion barrels).
Futures for Brent crude dropped $3.51, or 4.5%, to $74.02, the lowest price since December. Crude futures for West Texas Intermediate dropped $2.97, or 4.1%, to $70.58, the lowest level since January.
In order to ensure a decreasing supply of electricity for their quickly increasing data centers for artificial intelligence and cloud computing, U.S. technology giants are targeting energy assets held by bitcoin miners.
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