The artificial intelligence revolution could have a surprising effect on the oil market, according to a recent analysis by Goldman Sachs. While much attention has been focused on AI's potential to increase energy demand, the technology's impact on oil supply could actually lead to lower prices over the next decade.

Goldman Sachs analysts point to two main channels through which AI could boost oil supply. First, AI has the potential to significantly improve logistics and resource allocation in oil production. For example, one oil company in North Dakota used AI-driven predictive and automated drilling to reduce drilling times by 30%. The analysts estimate that early AI adopters could save up to $5 per barrel in production costs through such efficiency gains.

Secondly, AI could increase recoverable oil resources. The analysts hypothesize that AI could boost US shale recovery by 10-20%, potentially increasing oil reserves by 8-20%, or up to 30 billion barrels.

While AI is expected to increase power demand, this is unlikely to significantly affect oil demand since oil is rarely used for power generation today. Instead, increased power needs are more likely to impact natural gas and electricity markets.

The analysts estimate that any AI-related increase in oil demand, primarily through higher incomes, would only raise prices by about $2 per barrel. This is minimal compared to the downward pressure on demand from electric vehicle adoption and lower natural gas prices, combined with the supply increases enabled by AI.

Overall, Goldman Sachs predicts that AI could be a modest net negative for oil prices in the medium to long term. The negative impact on the cost curve (estimated at around -$5/barrel) is expected to outweigh the positive impacts on the demand side (about +$1-2/barrel).

This analysis suggests that the energy sector may need to prepare for a future where AI not only changes how we use energy but also how we produce it, with potentially significant implications for global oil markets and prices.