Legendary oil investor Boone Pickens said Tuesday U.S. oil prices should rally back to average $70 a barrel in 2007 from a slide this month, which has caused a 6 percent drop in hedge funds under his management.

U.S. oil prices have fallen 16 percent to around $51 a barrel since the end of 2006 as warm U.S. winter weather has crimped demand.

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But Pickens said global oil production of around 85 million barrels per day (bpd) would strain to keep up with demand later this year, helping to push prices for U.S. benchmark crude West Texas Intermediate to an average of $70 a barrel.

"I think the market is probably pretty balanced right now and we continue to draw down inventories. I think we could have a turnaround at any time," he said in a telephone interview with Reuters.

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"I'm a believer that 85 million bpd is all we can do globally for production," said Pickens, CEO of BP Capital, which manages energy-intensive hedge funds.

Supply concerns in key producer nations such as Iran and Nigeria helped push U.S. oil prices to record highs over $78 a barrel in July, and they could add further upward pressure to oil prices in 2007, Pickens said.

Pickens said his fund and others which had bet prices would rise had been hurt by the fall this year.

"In (2006) were up 26 percent and we are down 6 percent this year," said Pickens, who said BP Capital had around $4 billion in assets under management.

"If you were long oil you were particularly hard hit," he said.

The CEO added that despite the losses, his funds were not in danger of a meltdown similar the one that hit Amaranth Advisors, which went bust making bad natural gas bets in September.

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