Concerns Over Oversupply, Oil Prices at Yearly Low
Libya Oil Production Disruption Expected to Ease
AI Development to Exert Downward Pressure on Oil Prices Over Next Decade
International oil prices plunged more than 4% due to concerns over oversupply, hitting their lowest level of the year. Amid this, there are also forecasts that the advancement of artificial intelligence (AI) technology in streamlining crude oil production systems could act as a factor driving oil prices down over the next decade.
On the 3rd (local time) at the New York Mercantile Exchange, October delivery West Texas Intermediate (WTI) crude oil closed at $70.34 per barrel, down 4.36% from the previous trading day. The global benchmark Brent crude for November delivery ended trading at $73.75, plunging 4.86% from the previous session. Both WTI and Brent crude prices reached their lowest levels of the year on this day.
Oil prices fell on news that disruptions in crude oil production caused by the closure of major ports in Libya would soon be resolved. In Libya, where oil production has been hampered due to power struggles between the eastern and western governments, the Libyan legislative bodies announced that they had successfully agreed to appoint a new central bank governor within 30 days following UN-sponsored talks.
Concerns over an economic recession, triggered by the August US manufacturing Purchasing Managers' Index (PMI) released on the same day, were also analyzed as a factor stimulating selling sentiment. According to the Institute for Supply Management (ISM), last month's PMI was 47.2, falling short of market expectations (47.5) and remaining below the threshold of 50?which separates contraction from expansion?for the fifth consecutive month. The end of the driving season, marked by Labor Day, when Americans' vehicle usage typically increases, also influenced the decline in oil prices.
The end of the production cut extension by the Organization of the Petroleum Exporting Countries (OPEC) and their allies, known as OPEC+, in October, along with ongoing concerns about slowing consumption in China?the largest crude oil importer?are additional factors exerting continuous downward pressure on oil prices.
Goldman Sachs, in a report released on the same day, forecasted that advancements in AI technology could act as a factor suppressing oil prices over the next decade.
According to Goldman Sachs, the adoption of AI in the oil production industry could potentially reduce the costs of developing new shale wells by about 30% through resource development efficiency and improvements in logistics costs.
Furthermore, amid the global AI boom drawing attention to energy resources, the expected increase in crude oil demand is projected to be minimal compared to electricity and natural gas, which also contributed to the weakening of oil prices.
Goldman Sachs explained, “AI is likely to cause a net loss to oil prices in the medium to long term,” adding, “While the increase in crude oil demand due to AI popularity may raise oil prices by $2 per barrel, production efficiencies brought about by AI could lower oil prices by $5 per barrel.”
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