Merrill Lynch said in an energy report released this week that new investment in extra refining capacity had been limited and lagged the growing global demand for fuels. Resolving this key bottleneck would take time and money.

The investment bank said that worldwide only one new refinery and a handful of upgrading projects had been given the go-ahead in the past six months.

Some analysts believed last year’s record refining profits marked a turnaround for the previously depressed and under-used industry, while others forecast tight global supplies for the short-term only.

But Merrill Lynch said high prices and margins were needed to encourage “an investment phase that is looking increasingly critical”.

Overall global refinery utilisation rates were likely to keep rising to a peak of 90%, from the present record 87%, with demand keeping margins above average until 2008. Estimated European refining margins were likely to be US$4.50 per barrel next year and US$4 in 2007.

"This should underpin a multi-year period of exceptional profitability for refiners," the report said.

Merrill Lynch predicted that two-thirds of the needed new capacity would come from Asia and the Middle East, rather than Europe, where environmental constraints were making refinery expansions difficult, or the United States, where no new refineries had been built for almost three decades.