Market Report: Prepare for a blockbuster deal in the oil industry

If the City rumour mill is to be believed, prepare for a blockbuster deal in the oil industry.

With the price of the black stuff under pressure, consolidation seems likely. Up until now the chatter has been around swoops for small, independent explorers, but today traders were talking up a bid for BP from Shell. Such a merger would create a Goliath worth well over £200bn.

Some dismissed the talk as far-fetched, while others said they’d heard it all before. IG’s Chris Beauchamp said: “If all else fails, a merger and acquisition story, however far-fetched it might seem, is always a way of boosting interest.” But the speculation was enough to drive BP 19.35p higher to 433.85p and help Shell put on 84p to 2,292p.

BG Group was also mentioned as a potential target. The oil and gas explorer’s shares have fallen by 30 per cent this year, and incoming boss, Helge Lund, whose £25m “golden hello” was cut this week after pressure, does not start the job until March. That leaves it vulnerable. Perhaps, surprisingly, BHP Billiton, up 32p at 1,516p, is mentioned as a potential bidder, despite the fact the mining giant is focused on spinning off non-core assets. Still, BG Group climbed 30.9p to 935.5p: £14 to £15 a share is discussed as a potential price.

The rumour mill and confirmation of the blockbuster merger between Aviva, up 0.6p at 500p, and Friends Life, 8.9p better at 375.1p, helped the FTSE 100 climb 85.73 points to 6,742.10.

Deal chatter also helped Bwin.Party rise 6.3p to 109.5p on the mid-cap index. Speculation was revived that Israeli billionaire Teddy Sagi’s Playtech, up 4.5p at 645p, could be interested. Bwin confirmed last month that it is in talks with a number of parties, and is thought to be holding out for an offer of 150p a share. Canadian gaming group Amaya is also thought to be in the running.

Budget African airline Fastjet is reaping rewards from the lower oil price, telling investors that it doesn’t pre-buy its fuel, and, as a result, is enjoying “substantial benefits” from the fall in price. FastJet flew up 0.07p to 0.85p.