OIL prices surged as high as $66 a barrel yesterday.

Analysts put the jump down to speculative buying, high global demand and continued refinery outages in the United States, while the International Energy Agency cited low spare production capacity in the Organisation of Petroleum Exporting Countries as a major factor behind soaring prices.

New York's main contract, light sweet crude for delivery in September, hit a record $66 before easing back to around pounds 65.50. In London, Brent crude for September closed at $65.38, up $1.39. "The market is just continuing to try to pass new highs all the time,'' Global Insight analyst Simon Wardell said. "It's looking for a level of prices that would hamper demand, but we haven't reached it yet, so prices are going to continue to rise.''

He added: "The petrol and gasoline situation in the US is probably the most worrying factor, and it looks like it could be an ongoing problem because a shortage of refining capacity is not something that can be solved very quickly.''

In Britain, the largest milk supplier Arla Foods warned soaring oil, gas and electricity bills would hit profits. Chief executive Tim Smith said: "The cost of food in Britain is going to need to rise to cover the rising cost of oil.'' The company said full-year profits would be 10pc below expectations because of the rising cost of collecting milk from farms and using oil-derived plastics.

Arla shares fell 5 - or 8pc - to 64p as analysts shaved 10pc from 2005 profit forecasts to around pounds 45m, and 10pc-12pc from 2006 results.

The group has successfully lobbied for a 3.5p per litre price rise in supermarkets.