The U.S. shale oil boom has completely changed the face of global oil markets in less than a decade, with production continuing to grow despite a big drop off in capital spending over the last few quarters.

A June 8th report from Oppenheimer Equity Research highlights that there is no place to hide in the oil and gas industry as global demand and sector fundamentals simply do not support much higher prices. That’s why, according to analysts Fadel Gheit and Luis Amadeo of Oppenheimer, there’s a very good chance that “oil prices could stay lower and for longer than expected”.

Crude oil prices not likely to move up much

The report highlights several factors that suggest crude will remain range-bound at best. For starters, supply continues to exceed demand as OPEC and other oil producers across the globe are raising production to protect their market share, while the anticipated drop off in shale production given the anticipated major drop off in capital spending never really happened. Keep in mind that lifting the economic sanctions on Iran would also very likely notably increase its oil export volume as well as lead to greater foreign investment which would eventually boost production.

Finally, Gheit and Amadeo argue weaker economic growth in Europe and China could reduce world oil demand and lead to lower oil prices for longer than expected.

S&P 500 energy sector down by 10% so far in 2015

Oil Prices BP

Ex-the refining sector, nearly all energy issues have not kept up with the S&P 500 this year. BP did manage to outperform the index because of positive news regarding a slightly less than expected financial settlement in connection with the Gulf oil spill five years ago. The energy sector was down by close to 10% on average. Of note, shares of the 15 large E&P firms covered by Oppenheimer are down around 15% on average for the year (Chesapeake Energy is off 44% and Southwestern Energy Co. is down 22%).

Oil Prices CHK

U.S. refiners, on the other hand, have done well so far this year. Refined product prices significantly lagged crude prices as they dropped and moved up faster than crude during the subsequent limited recovery, which boosted refining margins and earnings in the first half of the year. Gheit and Amadeo also highlight that: “Earnings further benefited from the crude differential, stronger domestic gasoline and diesel demand, cheap natural gas, which is used as fuel and feedstock, higher refining capacity utilization and record refined product export sales.”

Oil Prices SWN

More energy sector capex cuts coming

The Oppenheimer analysts also point out that despite the sharp capital spending reduction in the O&G industry this year, they “expect energy companies to cut spending further next year in line with cash flow. As long as crude oil prices remain below $75/b, regardless of the cost savings, which most likely will be lower than expected, most energy companies are expected to face cash flow deficits this year.”

That said, they also argue that these capex reductions really won’t hurt production much over the short run as firms are focusing on their most productive and cost efficient operations.