OIL group BP saw its half-year profits erupt on the back of the highest oil prices for more than 20 years.

BP posted a 20 per cent increase in profits of $8.63bn (£4.68bn) after the cost of a barrel of crude surged more than ten per cent between April and June.

Although the world economy slowed in the second quarter and Opec countries increased production, BP said strong demand for oil and tight capacity would continue to prop up fuel prices.

The cost of a barrel of Brent oil averaged $35.32 in the second quarter and more than $37 during July.

Lord Browne, chief executive, said BP was on track to meet all its targets and announced a nine per cent increase in dividends to shareholders.

Sky-high oil prices had enabled the group to buy back a large tranche of its shares and accelerate growth in dividend payments.

"This has been another strong performance against the backdrop of a robust trading environment," he said.

Lord Browne also reassured investors about the strength of the world recovery, pointing out that growth was still above historic levels.

Fears of a slowdown have led to volatile movements on stock markets around the world.

He noted that the pace of economic activity appeared to be easing in the US, while China had tightened policy to slow domestic demand.

"However, the momentum in Japan has continued and signs of recovery are emerging within Europe. Continued global economic growth is expected," Lord Browne said.

BP benefited from higher gas prices during the quarter amid fears of a fuel shortage in the US over the summer.

But an increase in imports of gas from Canada and liquified natural gas, together with higher onshore production in the US, have enabled these prices to fall back.