Oil prices raced to record highs of $67 a barrel yesterday as investors fretted over the world's strained capacity to refine and pump crude oil.

US oil has risen 51 per cent since the start of the year and the stage could be set for further gains, with no let-up seen in global demand growth and no signs that $60-plus oil is harming the economy of the world's largest consumer, the United States.

US light crude was up 90 US cents at $66.70 towards at the end of European trading yesterday, off a new all-time high of $67.10 a barrel. London Brent crude was up $1.08 at $66.46.

"The upstream and downstream constraints are real and long-term and we're seeing almost daily examples of them," said Michael Wittner, head of energy research at Calyon.

"We're going to have a very strong price environment until the steam is taken out of demand or until investment catches up and restores a spare capacity cushion to production and refining."

Supply limitations were underscored on Thursday by the International Energy Agency which cut its estimate of non-Opec supply growth. Non-Opec producers are failing to deliver as much oil as expected this year, leaving Opec to fill the gap. That has not proved a problem so far, with global markets well supplied on both crude and products.

Stocks held in OECD countries at 54 days of forward demand cover is one of the market's biggest bearish indicators, according to Calyon's Mr Wittner. "But they are being overwhelmed, correctly, by the capacity constraints," he said.

A new snag yesterday in the US refining system, this time at Premcor's 175,000 barrels per day (bpd) refinery in Tennessee, threatened petrol supplies. Several other refineries around the country have also reported recent problems.

Record high pump prices appear to have had little impact on demand. "There seems little standing in the way of the bullish euphoria," said Edward Meir of Man Financial.

Those high prices have yet to take a toll on the world's largest economy. Latest economic data showed US retail sales jumped 1.8 per cent last month, with the biggest gain in car sales due to buyer incentives.

In real terms, stripping out inflation, oil is below the $80 a barrel on average for the year after the 1979 Iranian revolution. But at an average of more than $53 for the year to date on US oil is up nearly $23 on the average for 2003.