"It will go up," said Pickens, who heads the BP Capital hedge fund with over $4 billion under management. "Oil is moving to a substantially higher level -- say above $125 a barrel."

U.S. crude futures hit a record $115.54 on Thursday. Oil prices have more than quintupled since 2002, propelled higher by soaring demand from emerging economies like China alongside slow increases in global production capacity.

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Despite new production from the Canadian oil sands and elsewhere, Pickens said global crude oil production is unlikely to rise above its current rate of about 85 million barrels per day, while global demand will likely hit 87 million bpd in the third quarter of 2008.

Pickens also expects U.S. natural gas prices to rise from current levels near $10 per million British thermal units to $12-$14 this upcoming winter.

Pickens, in Washington on Thursday to deliver a speech about energy at Georgetown University, made more than $1 billion in 2006 by betting on rising oil prices.

Pickens' hedge fund lost over 20 percent in the first three months of 2008 on a bet that oil prices would fall.

Pickens said his fund is now looking for oil and natural gas prices to rise.

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