Oil prices continued their rally amid growing concerns that Ukrainian drone attacks could disrupt oil flows through Russia's two most important crude export hubs on the Baltic coast.

Brent crude rose above $67 per barrel, after falling 1.7% on Thursday. The attacks have halted operations at Primorsk, the region's main oil loading port, and three pumping stations that deliver crude to the Ust-Luga hub, a source familiar with the situation said.

This increased risk premium offsets the International Energy Agency's (IEA) projection for a record-breaking oil supply surplus next year. The IEA's more pessimistic report on Thursday followed OPEC+'s decision to continue returning unused barrels to the market in October, albeit at a lower rate than previous increases.

The oil market is caught in a "tug-of-war" between bearish fundamentals and rising geopolitical risks, Citigroup Inc. wrote this week, reiterating its view that Brent will fall to the low $60s by year-end.

With Brent battered by competing forces, prices are increasingly trapped in a range between $65 and $70 per barrel. Prices have been moving in that range since early August. "The volatility reflects the market's ongoing struggle to balance the risks of a growing surplus with persistent geopolitical uncertainty and resilient refined product margins," said Ole Hvalbye, a commodities analyst at SEB AB. "General sentiment remains cautious." (alg)

Source: Bloomberg