Like it or not, oil is the lifeblood of economies. Countries such as China, growing rapidly but without much in the way of resources itself, know that it remains their Achilles heel. China is now taking the next natural step in protecting and diversifying its exposure to this volatile market: it is establishing a strategic oil reserve.

China consumes 5.8 million barrels of oil a day. Assuming this figure remains constant (which it won't), to create a 3 month reserve of petrol they will need to buy 522 million barrels of oil for the reserve. This is more than 19 days of all of OPEC's maximum production capacity. While the reserve won't be ready until 2007, it will be another factor to underpin a strong oil price. The real question will be under what conditions will the reserve be released? Will China use it to smooth out price fluctuations or use it only as a true emergency backup?