— This is the script of CNBC's news report for China's CCTV on June 14, 2019, Friday.
The oil tanker attack in the gulf of Oman has raised geopolitical tensions across the Middle East because the recent frequency of attacks in the region has made the current attack an added fuel to the fire.
Just over a month ago, on May 12, two Saudi oil tankers and two United Arab Emirates merchant ships were also deliberately attacked in United Arab Emirates waters in the Persian Gulf. At the time, the United States and Saudi Arabia also tended to point the attackers at Iran and that was an act of retaliation by Iran against U.S. sanctions, but Iran denies the charge.
In addition to the number of attacks, the location of the attacks is also critical. The location of the may attack was a very important strait: 140 kilometers south of the Strait of Hormuz. We know that the Strait of Hormuz is a strategically important waterway as a fifth of the world's oil consumption is transported from oil producers in the Middle East and go through this strait.
You can see from this map that the location of the attack located in the Gulf of Oman, which is at the entrance to the Strait of Hormuz. This has raised concerns about the safety and reliability of the Strait of Hormuz.
And that's why oil prices gained overnight. London Brent crude rose more than 4 per cent before closing 2.2 per cent higher, while US WTI light crude also rose 2.2 per cent.
And what we're likely to see next is a further impact on the global oil market as a result of rising geopolitics. And there are two interesting directions. One is the attitude of shipping companies to new orders in this region.
Now it has emerged that Bermuda-based oil tanker company DHT holdings and US tanker operator Heidmar have suspended new bookings to the Middle East gulf. At the same time, the attitude of insurance companies is also important. If insurers start cutting back on their coverage of the Strait of Hormuz, there will be fears that the amount of oil traded through this main water will be reduced.
How will these developments affect the outlook for oil prices? Some analysts say this may be a short-term boost to oil prices, but how much it can drive will depend on whether things escalate. And in the longer term, oil prices still face weak global demand. That includes a recent OPEC report that cut the growth rate of global oil demand this year, making the expected global demand fell short of expectations. And for the development of events and changes in oil prices, we will keep an eye on this issue.