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Boone Pickens doesn't expect drop in oil prices

NEW YORK — Crude oil prices are likely to stay near the record $55.33 a barrel reached this week in New York because global supplies of the raw material are peaking, Dallas oil investor Boone Pickens said.

Increased oil exploration and production spurred by record energy prices will fail to give a significant boost to today's global output of about 82 million barrels a day, Pickens said yesterday in an interview in New York. Few, if any, large fields remain to be discovered, making it difficult to counter the declining output of the reservoirs that are already tapped, he said.

"With an economy just leveled off at where we are right now, you're going to continue to build demand, and you're not going to have supply," Pickens said. "The fundamentals are getting progressively more favorable to a higher price."

Pickens predicted a month ago that crude oil was more likely to climb above $60 a barrel than to fall to $40 a barrel. He stuck to that prediction yesterday. "I don't think I'll ever see $35 oil again," he said. In May, when oil was around $40 a barrel and most analysts were forecasting declines, Pickens correctly predicted that oil would climb to $50 a barrel.

Pickens said his energy commodity hedge fund, which almost quadrupled to $575 million through the first three quarters of this year, is betting on rising oil prices now through 2010.

"It may take a while to get to $60," Pickens said. "Fifty dollars came pretty quick after I said it," and the next advance may take longer. "But who knows? Something could happen and you could be at $60 before you can blink an eye."

Oil gained $1.63 to $54.92 yesterday in New York trading. Oil has gained 68 percent this year as supplies have been disrupted by violence in Iraq and Nigeria and a hurricane in the Gulf of Mexico.

Pickens, 76, became known in the 1980s for attempted takeovers of Phillips Petroleum, Cities Service and four other publicly traded energy companies. He built Mesa Petroleum into one of the largest independent oil operators before bad bets on natural gas forced him out in 1996.

Past periods of high energy prices have prompted oil companies to step up exploration and production, eventually leading to a glut of oil, Pickens said. That scenario won't happen this time, because the oil is getting harder to find and more expensive to produce.

"I've been involved in it several times, and I don't like it, because we all rush out and spend the money and then we get dusted," Pickens said. This time, "There won't be oversupply."

Pickens has been bullish on energy prices for more than four years. He said he has made more money as a hedge-fund manager than he ever made with Mesa and his takeover attempts.

Pickens also oversees a fund that holds energy company stocks. That fund has begun to "short" the shares of industrial companies that may be hurt by oil prices above $50 a barrel. In a short position, an investor sells borrowed shares hoping to buy them back at a lower price.

Garrett Smith, who helps manage the equity fund, said he is shorting companies in the petrochemical, paper, rubber, mining and glass industries. He declined to name specific companies.

Copyright © 2004 The Seattle Times Company

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