Confidence was one commodity seemingly in abundance at British Petroleum yesterday as the company announced the world's biggest industrial merger.

Sir John Browne, BP's chief executive, threw down the gauntlet to Royal Dutch/Shell and Exxon, the other two "supergiant" international oil companies, promising to introduce a new dimension to competition in the industry. "We plan to shape our own destiny," he said, creating "real competition for those already in that league".

Executives used a string of superlatives to describe the takeover of Amoco, the US's fourth-biggest oil company. It will create Britain's biggest company and one of the three largest oil groups in the world.

The new company will also be the biggest producer of oil and natural gas in the US, the world's largest energy market. And its combined daily output of about three million barrels will be greater than that of Britain and of most members of the Organisation of Petroleum Exporting Countries.

It will take analysts days to pore over the details of the deal to discover all its nuances and possible pitfalls. But even as executives finished their briefings yesterday in the Honourable Artillery Company headquarters in London, it was already clear that the BP Amoco link-up is likely to cause fundamental shifts in an industry of central importance to the world economy.

So what lay behind the deal?

The phrase "distinctive assets" was mentioned several times by Sir John. The worldwide search for outstanding projects has become an obsession of the leading companies in the sector.

Traditionally, even the biggest oil companies have had just a handful of assets that are seen as "company builders". These are the prolific and long-lasting fields that produce very high rates of return and fund an oil company's constant - and very expensive - search for yet more assets.

In recent years, competition to secure a new generation of such reserves has intensified. This is partly because such oilfields are becoming increasingly hard to find as oil companies scour in more and more remote regions of the world. Competition for those reserves that remain has also grown as state oil companies and recently privatised groups move outside their domestic markets.

Sir John is hoping the merger will help that cause. BP Amoco, he said, will have the financial wherewithal "to take decisive stakes in the best projects".

Sir John insisted that low oil and commodity prices did not influence the decision to merge, although it was interesting to note that yesterday's announcement came as oil prices dipped to fresh 10-year lows. Analysts say it is generally those oil companies with the lowest-cost assets that do best in cyclical downturns. What are the chances of a smooth integration of BP and Amoco?

The answer is, probably better than many previous Anglo-American ventures. Two years ago, BP merged its European refining and marketing operations with those of Mobil. That too was an effective takeover, albeit on a much smaller scale.

The Amoco merger is of a different order. But initial job losses - about 6,000 out of a combined workforce of 100,000 - means the vast majority of BP and Amoco employees will be unaffected, at least in terms of losing their job.

Cultural clashes should be minimal, as BP already has a substantial US business and a smattering of senior US executives.

Mobil was often seen as the most likely long-term partner for BP. The companies have talked about a possible link-up for some time, but some analysts said such a deal would have been complicated by questions of who would lead the combined group. Mobil already has a strong-willed executive leader in Mr Lou Noto, and Sir John is known to have been concerned about the dangers of sharing the top leadership slot. Mr Larry Fuller of Amoco, on the other hand, is due to retire soon, smoothing out any possible leadership battle. Mr Fuller, who will be co-chairman of the combined group along with Mr Peter Sutherland of BP, acknowledged yesterday the pitfalls that might emerge over the next two years or so. "We've thought hard about the need for speed" in integrating the two companies, he said.

If Sir John's optimism is merited, the deal will have profound implications for the rest of the industry. But what exactly will the effects be?

The merger is likely to put pressure on other integrated oil companies to improve their own competitiveness. For Exxon and Royal Dutch/Shell, long accustomed to having the "super league" to themselves, the BP/ Amoco deal probably comes as a rude shock.

But it is not clear that Shell and Exxon will feel the need to emulate BP by growing even bigger. Just last week, Mr Mark Moody Stuart, the new Shell chairman, speculated that one reason there was such little consolidation in the oil industry was "because we're all so big anyway".

Mr Moody Stuart also wondered whether a wave of mergers and acquisitions would have any point.