How Artificial Intelligence Will Reduce Oil Prices

How is Artificial Intelligence Affecting Oil Prices?

There is an intriguing connection between the development of Artificial Intelligence (AI) and the price of oil, as noted in a recent study by Goldman Sachs.
Surprisingly, this linkage could lead to a decrease in crude oil costs.
While it is true that AI technology will likely increase energy demand, analysts point out that enhanced logistics and improved oil recovery processes driven by AI could raise supply levels faster than demand, resulting in lower prices over the next decade.

This forecast challenges earlier predictions that suggested energy prices, including oil, would rise due to the energy-intensive requirements of AI operations, particularly in data centers.
Nonetheless, it is crucial to recognize that this relationship is more relevant for natural gas than for oil, which is expected to experience various supply-side enhancements.
But by how much could oil prices fall in ten years? Goldman Sachs provides insight into this question.

The Role of AI in Reducing Oil Costs

Goldman Sachs’ theory holds that AI could significantly impact oil pricing by increasing supply, optimizing logistics, and enhancing the economic viability of resource recovery efforts.
Analysts emphasize that AI’s potential to reduce production costs and improve the efficiency of resource allocation in oil production is noteworthy.

For instance, in North Dakota, a company used automated and predictive drilling techniques powered by AI, leading to a 30% reduction in drilling times.
Analysts estimate that a 25% productivity increase through similar early AI adoption could save approximately $5 per barrel in production costs.

Potential for Increased Oil Recovery

Furthermore, Goldman Sachs suggests that AI could bolster recoverable resources.
They foresee a hypothetical 10%-20% increase in the recovery of U.S.
shale oil, potentially elevating reserves by 8%-20%, equating to nearly 30 billion barrels, based on their projections.

These supply gains appear to vastly outweigh any prospective demand increases, according to analysts.
Even though AI will require more energy, its impact on oil will likely be minimal, given that oil is not significantly utilized in electricity generation today.

Goldman Sachs estimates that AI’s influence on the cost curve could lead to a reduction of approximately $5 per barrel over the long term, overshadowing any minor positive demands projected at around $1-2 per barrel.