If speculation about a BP (BP.) and Shell (SHEL) merger were a bowl of rice it would surely give you a monster bout of food poisoning given the number of times it has been reheated.

But BP has rarely looked so vulnerable, so it’s not a huge surprise to see rumours of Shell swooping in gather a head of steam. That vulnerability and a diminished valuation are one of the key reasons to think a deal could be on the cards.

Unlike an overseas buyer, Shell would be unlikely to face obstacles around government oversight and interference in the sale of a business which could be considered a strategic asset to the UK. BP’s activist shareholder Elliott might also welcome a deal as a way of exiting its position at a profit.

However, there is a list as long as your arm why Shell might steer clear. Yes, BP’s assets have value, but the business is in a mess and has suffered from lack of a clear strategic direction. It also has a mountain of debt which Shell would be forced to absorb – $27 billion at the end of the first quarter.

In addition, it would be very much at odds with Shell chief executive Wael Sawan’s attempts to streamline the business and make it a more efficient, returns-driven operation - an approach which has helped Shell handily outperform both BP and its big US counterparts since the beginning of 2023.

If I were a Shell shareholder I would be hoping talk of the company running a rule over BP was simply a matter of not ignoring all potential opportunities rather than a precursor to a serious plan to take over the business.

As we discussed in our news section in last week’s issue, the impact of tariffs announced in early April were always likely to take some time to feed through to the US economy as cargo ships from China made their way across the Pacific. However, we could be close to the point of seeing some first-order effects.

Berenberg’s chief economist Helger Schmieding says: ‘The full sticker shock for US consumers is not yet visible in the data, as retailers and wholesalers prepare to pass on the tariff costs. Some of it will likely show up in the inflation numbers for April once they are released on 13 May, but we also expect further price increases beyond that.

‘US household consumption depends more on imports from China than from any other country. Directly, around 1.5% of the core PCE basket (which excludes food and energy) consists of Chinese goods, roughly equal to the combined share of imports from Mexico and Canada.’

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