Strategic Extracts from Bloomberg Television interview with Boone Pickens

By Robert Dieterich

May 18, 2004

(Bloomberg) -- Crude-oil futures in New York may soon rise to $45 a barrel as producers near capacity and economic growth stokes demand, said Boone Pickens, a former Texas oilman who oversees $675 million in energy investments. Oil companies around the world are pumping about 80 million barrels of crude a day and have excess capacity of 1 million to 2 million barrels a day, said Pickens, 75, who runs investment firm BP Capital in Dallas. That leaves no slack in the system as fuel demand surges in the U.S. and China, he said. “I think you could see $45 oil pretty quick,” Pickens said in an interview in New York. “There's no oil coming to us that we haven't counted on.”

U.S. oil futures have jumped 41 percent in the past year and yesterday traded at a record $41.85 a barrel. The surge has raised concern that high energy prices will undermine economic growth. Critics of the Bush administration, including Democratic presidential candidate John Kerry, have called on the government to stop stockpiling oil to help push down prices. Rising U.S. gasoline demand may outstrip refinery capacity and is contributing to gains in oil prices, Pickens said. “I think gasoline, the refinery situation, could very well be the driver” in energy markets, he said. Crude oil for June delivery fell 2.4 percent to $40.54 a barrel on the New York Mercantile Exchange after yesterday reaching the highest price since the futures contract began trading in 1983.

Record Gasoline Prices

Gasoline for June delivery fell 2.6 percent to $1.38 a gallon after touching an all-time high of $1.425 yesterday. At yesterday's peak, gasoline had risen 50 percent this year. Crude oil is up 25 percent year-to-date. U.S. gasoline supplies are lower than last year because of environmental regulations that limit imports, said Michael Ross, a commodities trader at BP Capital. Consumption of the fuel is running 2.5 percent to 3 percent ahead of last year's pace, he said. “That's a huge number.”

Pickens, who predicted in October that oil prices would be between $28 and $32 a barrel for the next several years, today said futures won't drop below $30. He said he's also bullish on natural gas and eating oil. New York natural-gas futures, which closed today at $6.145 per million British thermal units, may climb above $7 this summer, he said.

’Dodging 18 Wheelers’

Supply concerns in the U.S. may shift from one fuel to another as seasons change, Pickens said. Motorists in the next few months will test the limits of gasoline supplies, he said. Inventories of heating oil, which is produced more slowly as refineries try to meet gasoline demand, may be strained during cold-weather months. “You feel like you're at an intersection dodging 18 wheelers,” Pickens said. 
Weather was mild enough in last year's hot-weather months to allow U.S. natural-gas inventories to recover to adequate levels, Pickens said, prompting people to say, “Whew, we got by that one.'' The energy commodity fund Pickens runs, which is closed to new investors, has jumped 150 percent so far this year, giving it total assets of about $375 million. Pickens also runs an equity hedge fund invested 90 percent in stocks of energy companies and 10 percent in commodities. The fund, with holdings that include refiner Valero Energy Corp. and Canadian oil-sands developer Suncor Energy Inc., has returned 25 percent this year.
 

Strategic Petroleum Reserve

Pickens endorsed the Bush administration's policy of filling the nation's Strategic Petroleum Reserve to capacity and refusing to tap it to push down prices. “We're already so tight around the world, something is going to happen'' to disrupt supplies. The reserve should be held until then, he said.  Disruptions could occur where there were supply interruptions last year, such as Nigeria or Venezuela, Pickens said, or in some part of the world that oil traders and analysts aren't watching.  The reserve currently holds about 658 million barrels of oil, equivalent to about eight days of worldwide production. Senate Democrats, including Charles Schumer of New York, John Corzine of New Jersey and Barbara Boxer of California, today said Energy Secretary Spencer Abraham should release oil from the reserve. The nation is “in the grip of price shocks'' from the rise in energy costs, the Senators said in a statement.  Representative Joe Barton, a Republican from Texas and chairman of the House Energy and Commerce Committee, said the government should stick by its pledge to keep the reserve for a supply emergency. “Selling off oil in order to manipulate the price of gasoline deserves bipartisan condemnation,'' Barton said in a press release.

To contact the reporter on this story:
Robert Dieterich in New York (1) (212) 893-4485 or rdieterich@bloomberg.net.