Goldman Sachs Research Finds AI Could Reduce Oil Prices

Artificial intelligence (AI) could reduce the demand for oil, and thus weigh on oil prices, over the next decade by improving supply and reducing costs through improved logistics and an increase in profitably recovered resources, Goldman Sachs said in a research note.

Previous attention has focused on the technology’s significant power requirements, especially for generative AI tools such as ChatGPT-like chatbots, but the new report shows the technology may have a significant impact on power production.

Improved processes could reduce oil prices and weigh on the incomes of members in the Organisation of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, the note said.

The investment bank said it had observed a 25 percent productivity gain in early adopters of the tech in the oil and gas sector.

Reduced costs

“AI could potentially reduce costs via improved logistics and resource allocation … resulting in a $5/bbl (£3.8 per barrel of crude oil) fall in the marginal incentive price, assuming a 25 percent productivity gain observed for early AI adopters,” the note said.

Goldman said it expects a modest boost to oil demand from AI compared to demand for power and natural gas over the next 10 years.

But this would be outweighed by the negative cost impact, it said.

“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),” the note said.

The bank estimated that about 30 percent of the costs of a new shale well could potentially be reduced by AI, while AI could result in a 10 to 20 percent increase in the low recovery factors of US shale, boosting oil reserves by 8 to 20 percent, or 10 to 30 billion barrels.

Oil and gas companies have been using AI for applications including locating exploration sites, subsurface engineering, reservoir modellling, fluid flow prediction and optimising drilling extraction rates.

AI boost

The technology is also being used to improve efficiency in crude trading, as well as for smart logistics control in supply chain management and predictive maintenance of assets such as turbines, pumps and pipelines.

Companies have also been using AI to improve safety and reduce risk without affecting production.

The global AI market in oil and gas is expected to grow by 16.17 percent by 2028, according to Teamlease Digital, which said organisations could see 20 percent improvement in operational costs.

At the same time, tech companies’ power consumption has been soaring due to the increased focus on AI infrastructure in data centres, bringing firms into competition with Bitcoin miners, which also consume large amounts of power.

Industry watchers have noted that the power consumption of Nvidia’s AI accelerator GPUs has risen sharply over the past two years, in line with their data-crunching capabilities, with power consumption set to jump again with the next-generation “Blackwell” range announced in March.