Jeremy Grantham: Oil price slump won’t last

Jeremy Grantham of GMO is known for his economic and stockmarket analyses.One of his key themes is that we are in an era of dwindling commodity reserves and rising prices over the long term.When it comes to oil, he says, this is still true. US fracking is a "red herring".

The fracking glut has merely "given us a global time out from the inevitable oil squeeze". The world has never spent more in developing new oil supplies as last year around $700bn. And we have never found less, replacing only 4.5 months' current production.

Meanwhile, there is less to fracking than meets the eye. "Fracking reserves basically run off in two years", while a traditional field can flow for 30 to 60 years. Fracking costs are also turning out to be higher than estimated.

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The upshot is that US fracking will peak out in five to eight years, and the main influence on oil prices will once again be the cost of finding and developing an incremental barrel of traditional oil. By then, that will probably be over $100 a barrel. "I will continue to be a moderate buyer of oil futures six to eight years out."