BP and Shell shares surge on merger speculation

BP, the smaller of the two with a market capitalisation of £79bn, was up 4.6%, while Shell, which is valued at around £211bn, jumped 3.8%.

Market chatter was suggesting that BP could attract a takeover bid from its larger rival.

"Reports emerged during the day that suggested BP and Shell may be looking to merge," according to analyst Chris Beauchamp from IG.

"Such a merger would be a brave move at a time of heightened uncertainty – those who suggest it must know that they would either be labelled as geniuses or madmen depending on the eventual result," he said.

According to US broker JPMorgan Cazenove on Monday, the risk of industry consolidation is rising due to the recent plunge in oil prices.

Crude prices have dropped to their lowest in over four and a half years after OPEC resisted calls to scale back output amid a supply glut.

"Companies are likely to react defensively, cutting capex, and so reducing events that are key drivers for the sector. Intra-sector M&A may rise, although this often does more harm than good," JPMorgan said.