Saudi Arabia will be best positioned to weather the impact of an unprecedented collapse in U.S. oil prices, energy analysts told CNBC on Tuesday.
It comes at a time when the market is awash with crude, storage tanks are being filled and the coronavirus crisis continues to ravage global demand.
On Monday, the May contract for U.S. West Texas Intermediate futures tumbled into negative territory for the first time ever.
The contract, which expires on Tuesday, traded at negative $4 a barrel during afternoon deals. Remarkably, this means traders would effectively have to pay to get the oil taken off their hands. The May contract of WTI had settled at a discount of $37.63 on Monday.
The historic collapse in the market for crude oil futures was thought to have been exaggerated by the contract's imminent expiration. The June contract for WTI, which is much more actively traded and tends to be more indicative of how Wall Street views the price of oil, stood at $15.75 a barrel on Tuesday, around 22% lower.
International benchmark Brent crude traded at $20.64 a barrel Tuesday morning, over 19% lower.
"Saudi Arabia and Russia have both won here, but it's a very pyrrhic victory," Dave Ernsberger, global head of commodities pricing at S&P Global Platts, told CNBC's "Squawk Box Europe" on Tuesday.
Riyadh and Moscow have long had U.S. shale output "in their sights," Ernsberger continued, but "they need to look over their shoulder because Brent is not far behind, other crude benchmarks are not far behind, and the world is running out of storage."
The Covid-19 pandemic has meant countries around the world have effectively had to shut down, with many governments imposing restrictive measures on the daily lives of billions of people.
It has created an extreme demand shock in energy markets, with storage space — both onshore and offshore — quickly filling up.
In the U.S., the situation is thought to be particularly acute, with storage facilities at the country's main delivery point in Cushing, Oklahoma expected to be full within weeks.
"So, what we saw in Oklahoma yesterday, not unlike the virus in Wuhan, we can see the oil market virus spread to the rest of the world very quickly here," Ernsberger said.
"Our estimates are the total inventory in the world could be exceeded by the end of May (or the) beginning of June," he predicted, before warning Saudi Arabia and Russia should keep their celebrations "short and brief."
An energy alliance between OPEC kingpin Saudi Arabia and non-OPEC leader Russia, sometimes referred to as OPEC+, agreed earlier this month to take 9.7 million barrels per day of crude off the market from May 1.
It is the largest single output cut in the group's history, but analysts still do not expect it to comprehensively alleviate oversupply concerns.
"Ultimately, Saudi is a winner," Christian Malek, the head of EMEA oil and gas equity research at J.P. Morgan, told CNBC's "Squawk Box Europe" on Tuesday.
"They have managed to get out the door early selling oil while there was demand and then retracted that in their latest cut — which we view as a weak deal," he added.
Malek argued the "only way out" for oil markets was for OPEC+ to negotiate a much deeper output cut, suggesting Riyadh should consider production levels as low as 6 million barrels per day.
The next OPEC+ meeting is scheduled to take place on June 10.
"I think the situation is as follows, the Saudis recognize that they have one last big cycle coming, they want to make sure they position for that but equally they have a very important relationship with the U.S. — and particularly Trump," Malek said.
"On balance, I would argue that their relationship is a critical path to this negotiation around oil but ultimately it is not the holy grail. I think Saudi will look to negotiate and if it doesn't work and Trump's not re-elected, they do win on the oil side," he added.