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Oil prices continued their downward trend on Wednesday, with Brent front-month futures dropping by 1.3% to $72.81 per barrel, and West Texas Intermediate (WTI) also falling by 1.3% to $69.41. According to analysts at Citi, Brent crude could average around $60 per barrel in 2025 if OPEC+ does not extend current production cuts indefinitely and if demand remains subdued. They also suggest that prices could potentially decline further to approximately $50 per barrel if conditions worsen.
The decline in oil prices follows a significant drop from $90 per barrel a year ago, despite ongoing geopolitical tensions in the Middle East and Ukraine. The Citi analysts point out that the market is now acknowledging that geopolitical events do not always lead to reductions in oil production or disruptions in transit.
In a related development, Goldman Sachs has highlighted the increasing role of artificial intelligence (AI) in the energy sector, which may influence oil prices over the next decade. According to Goldman Sachs, AI could reduce shale production costs by up to 30%, potentially lowering prices by around $5 per barrel. Furthermore, AI has the potential to increase oil reserves by 8-20%, with up to 30% of the costs of a new shale well potentially being cut due to AI advancements. This technological innovation might also expand the ultimately recoverable resource base.
Although AI may slightly boost oil demand by 0.7 million barrels per day, this increase is overshadowed by the negative impacts on demand from the rise of electric vehicles (EVs) and falling natural gas prices. The Goldman Sachs team predicts that, overall, AI will likely have a modest negative impact on oil prices in the medium to long term.
In summary, the outlook for oil prices suggests a continued decline, with potential average prices dropping to $60 per barrel and possibly even lower. The influence of AI in the energy sector could further contribute to this trend by reducing production costs and potentially expanding reserves, although its impact on demand remains relatively minor compared to other factors.
