Speculation of a £200bn mega-merger between Shell and BP gripped the City on Wednesday after it was claimed the oil giants were in active talks.

Shell was forced to deny discussions were ongoing after the Wall Street Journal reported that “company representatives” were in talks about uniting Britain’s two major oil and gas giants.

Despite Shell’s swift denial, one investor said “the genie was out of the bottle” and that BP was now a credible takeover target.

BP shares spiked 7pc after the report before falling back to close up 2pc. The article claimed the FTSE 100 giant was open to the prospect of merging with Shell.

It follows months of rumours that BP had become a target for rivals after losing ground, in large part because of its ill-fated pivot to net zero.

BP’s defences have also been weakened by the impending exit of chairman Helge Lund, who is leaving next year under pressure from shareholders. Elliott, the hedge fund, is a major investor in BP and has been pushing the group to improve its performance.

The United Arab Emirates’ state-owned oil company Adnoc reportedly examined a takeover of BP last year and has more recently been assessing a bid for assets, opening the door to a possible break-up of BP. Previous reports have also claimed that Shell was examining a potential takeover.

An investor who owns shares in both BP and Shell said they would back a merger because it would create cost reductions for both groups.

However, they said Shell would have to pay a premium of at least 30pc – implying a takeover price of about 480p per share, or £75bn – to win shareholder support.

BP, led by chief executive Murray Auchincloss, is currently valued at £58bn. Shell is the larger of the two with a market cap of £152bn.

“I don’t think this has come as a surprise. The genie is out of the bottle now on BP,” the investor said. “BP is an attractive asset for Shell because there’s a lot of synergies.

“The market didn’t expect Shell to do it now because they still have cost-cutting plans, but they’re getting to the end of those. BP has been weak and with a low market cap, so there’s quite a lot of synergies.”

They added that another possible suitor for BP, American giant Chevron, was effectively ruled out of bidding for now because of litigation in the US about its takeover of Hess.

This would make any Shell bid for BP easier because a major competitor could not launch a counter-offer for several months.

Any deal would be hugely sensitive given BP is seen as a strategically important asset for the British state. It was majority-owned by the government until the 1980s and still enjoys close links.