Oil prices gain after Ukraine's strike on Russian port disrupts operations

Geopolitical tensions are offsetting concerns of oversupply in the market

Rosneft's Russian-flagged crude oil tanker Vladimir Monomakh transits the Bosphorus in Istanbul, Turkey. Geopolitical tensions continue to affect oil markets. Reuters

Oil prices swung to gains on Friday, at one point surging more than 2 per cent, as they posted a weekly gain after a Ukraine drone attack in Russia that disrupted crude operations there and offset concerns of oversupply in the market.

Brent, the benchmark for two-thirds of the world's oil, settled 0.93 per cent higher at $66.99 a barrel. West Texas Intermediate, which tracks US crude, rose 0.51 per cent to $62.69 per barrel.

Compared to last week's close, Brent was 2.27 per cent higher, while WTI added 1.32 per cent. Year-to-date, the benchmarks have retreated 10.23 per cent and 12.59 per cent, respectively.

Crude was initially trending lower before the Ukrainian strike on the port of Primorsk, a key oil and fuel export terminal that is the final station in the Baltic Pipeline System, Ukraine's SBU security service said.

That led to a suspension of oil loading operations overnight in the aftermath of the attack, it added. The port loads about 1 million barrels of crude per day.

"Those attacks on Russian energy infrastructure have room to drag down Russian crude and refined product exports," said Giovanni Staunovo, an analyst at Swiss bank UBS.

Oil was also supported by continued geopolitical conflicts. Israel's attack on Doha on Tuesday in an attempt to kill Hamas leaders has led to international condemnation and rising tensions in the region.

Tensions also rose between Poland and Russia after Warsaw, with help from Nato allies, shot down Russian drones that entered its airspace.

“The situation is serious, and no one doubts that we must prepare for various scenarios,” Polish Prime Minister Donald Tusk said following the incident early on Wednesday. It occurred during a wave of Russian strikes on Ukraine in their continuing war.

Oil's rise, however, was capped by demand concerns and the availability of spare capacity in event of a supply shock in global markets.

Oversupply concerns continued to affect global oil markets as Opec+ decided to raise production for October by 137,000 barrels per day.

The eight member group is aiming to regain market share and has been unwinding output cuts since April.

This week, the International Energy Agency raised expectations of 2025 and 2026 global oversupply to 1.95 million bpd and 3.06 million bpd, respectively. Opec held steady its 2025 as well as 2026 average demand growth estimates at 1.30 million bpd and 1.38 million bpd, respectively.

"Oil prices moved lower.... as the debate over the pending supply glut gained relevance," Norbert Rucker, head of economics and next generation research at Julius Baer, said in a note on Friday.

"A closer look at recent storage trends suggests that this surplus has arrived, with inventories visibly swelling in North America and Europe."

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Soojin Kim, research analyst at MUFG bank said "the glut is already under way", as indicated by the US Energy Information Administration, with crude futures more than 10 per cent lower year-to-date.

Demand concerns in the US are also weighing on oil prices, with the latest data indicating an increase in inflation and unemployment numbers in the world’s largest economy.

The headline US consumer price index rose 2.9 per cent year-on-year in August, up from 2.7 per cent in July, while people filing for unemployment benefits for the week ending September rose by 27,000 to 263,000, the Labour Department reported on Thursday.

This is the highest level for initial claims since October 2021 when it was 268,000, the data shows.