Oil should hit $120 a barrel or more this year as the market situation increasingly resembles 2008, with supplies struggling to keep pace with demand, oil tycoon T Boone Pickens said.

Brent crude in London settled at a 28-month high of $99.42 a barrel on Friday as unrest in Egypt heightened tensions in the Middle East. US crude rallied more than 4 per cent to $89.34 a barrel.

'You've got a similar situation to 2008, with extra supplies available in this market possibly less than 1 million barrels (per day) now,' Pickens said in a telephone interview.

'You're going to see $100 this quarter and it's going to go even higher, to $120 or more this year,' he said. 'You need to get to at least $120 to see prices start to kill demand.'

In 2008, oil soared to almost $150 a barrel in the first seven months of the year as strong demand cut spare capacity in members of the Organization of the Petroleum Exporting Countries (OPEC).

Pickens did not expand on his statement that spare capacity was possibly as low as 1 million barrels, but acknowledged: 'Many people think it's more like 4 million barrels per day'.

The oil minister of Saudi Arabia, the largest producer in OPEC, said on Monday the group's spare capacity was around 6 million bpd, with 4 million of that in the kingdom.

Pickens, 82, chairs Dallas-based hedge fund BP Capital Management, which has separate funds for equities and commodity investment.

He said the equity fund returned 2 per cent in 2010 while the commodity fund shed 15 per cent. Pickens declined to give a specific number for either fund so far in 2011, but described the performance of both as 'very good indeed'.

Pickens is a long-term advocate of the United States switching to natural gas as a transportation fuel and reducing its reliance on imported oil, especially from the Middle East.

He has frequently said the US government lacks a long-term energy strategy, despite being the world's largest oil consumer, and cautioned oil prices could triple in the next 10 years without one.

'Where else in the world doesn't have an energy plan,' Pickens said.

'If we don't do something to reduce our reliance on imported oil, we could see $300 a barrel in the next decade.'

The US consumes over 19 million barrels of oil a day, around 22 per cent of the global total, according to the US Department of Energy. – Reuters