A closer look at oil's slide

The issue may be supply, not demand, and a painful buy could be your best play.

By Jim Cramer Jun 26, 2012 9:53AM

"I am not stupid. I don't own any oils. I don't own any oil futures. I don't own any natural gas stocks. I don't own any oil-service stocks. I saw this decline coming, and I sidestepped it. I am brilliant."


That's the litany that's going on as the quarter winds down. A whole complex, a whole segment of this market is being thrown out without any thought of value or any thought of a reversal, and it is breathtaking.


It deserves some analysis.


First, what's driving the oil and natural gas futures lower, although the latter has had a tad of a lift of late? The perception is that there is a dramatic slowing in demand. We believe that China's economy is ratcheting back so fast that they simply aren't using all of those gas guzzlers that they just bought.


Europe? Despite the fact that economic activity hasn't ceased and that parts of the Continent are robust, it's been taken as a given that oil use has been curtailed rather dramatically. We have no signs of this being the case, but with Brent at $90, down from $125, the conclusion is taken as gospel.


And then there is the United States. We have an amazing transformation going on in this country. We have found much more oil than we ever expected even two years ago. If I had told you in 2009 that North Dakota would surpass California and Alaska in oil production to become No. 2 after Texas, you would have laughed at me. The reason it hasn't passed Texas is that as great as the Bakken has been as a place for light sweet crude discovery, Texas is even better.


Yet I don't know a soul who says, "Look, one of the major reasons why our oil market has fallen so much is that we have too much of it in the pipe."


In other words, that demand, or the lack thereof, isn't nearly as important as the excess of supply.


It's not just the U.S. that might have a production glut. The Saudis have always been determined to make it so that we don't develop our oil and gas reserves. They have done it by putting pressure on prices when they reach levels that allow us to be more economic in our drilling. In the last few years, the floor on where we will still drill aggressively is about $80, because if the oil companies can't get more than that, it really isn't worth it.


When you add in that Iraq and Libya are now pumping a great deal more than we thought, we can come up with a mosaic that says it isn't the demand side that's at fault, it is the supply side.


So let's go full circle. The people who say it is demand at this point have a vested interest. They have eschewed the group or thrown it away, and we are in the waning days of the quarter when they will have to reveal their holdings. This is a quarter where if you owned these stocks, you were revealed as a stock charlatan. It doesn't matter that we could be on the verge of something big going the other way, big Chinese rate cuts and a potential growth initiative or initiatives in Europe. It's the dynamics of money management that are in play.


My take: They are way too depressed to sell. My instinct is to buy them into the end of the miserable oil and gas quarter, and that's what we are attempting to do for Action Alerts PLUS, as painful as it is, and boy is it ever painful. 



Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.




More from TheStreet.com

Jun 26, 2012 1:59PM
I think we need someone to look into why the pump prices are still so high!  I would also like the American people to start asking why we are not using CNG in all our cars by now!  This is stupid that we keep paying such high prices for crude oil from over seas and exporting our cheap CNG.
Jun 26, 2012 1:54PM

we all know the supply and demand theory has been blown out of the water. it used to be if a hurricane was in the gulf that would be the reason, one of the pipelines being worked on we would see higher increase, China using more cars, etc.   then the Arabs say we're not the ones,  big oil gets called in. we're not the ones. so now its the speculators that get the blame.   Look at the timing people.   Its political!!!!   prices drop right after Obama get s going on his campaign.


Just like russia and the nukes, "i'm only gonna have one more term, lets talk about things after the election" 

Jun 26, 2012 1:46PM
It all comes down to one thing...are you tired of the rich getting all the bailouts and us working men getting nothing? Take a look at what I found and see why the rich are trying to hide this for themselves. G00GLE the term ' FAST STOCK BUDGET ' all one term and click the first site. Go right to the 'PENNY STOCK' page to see what the rich don't want you to know. It is time your family lives the good life and this will help. THIS IS AMAZING!!! THIS IS A MUSSSST SEEE!!!
attention to that big crash that you heard that was the collapse of the banking system just keep buying stock. Pay no attaention to the fact that Wall Street which was once the engine of the US economy because of its transparency which allowed joe public to invest without being cheated by crooks, and its focus on funding US industrial development is replaced by a system that is rigged to allow the insiders to rape joe public
Jun 26, 2012 1:45PM
Cramer:    Pay no attention to that big crash that you heard that was the collapse of the banking system just keep buying stock.    Pay no attaention to the fact that Wall Street which was once the engine of the US economy because of its transparency which allowed joe public to invest without being cheated by crooks, and its focus on funding US industrial development is replaced by a system that is rigged to allow the insiders to rape joe public invester and produce ZERO good for the US.   Ef You Cramer.   I put more trust in what the Kramer character on Seinfeld would have to say about investing.
Jun 26, 2012 1:37PM
Did he just talked to Obama before he wrote this?
Jun 26, 2012 1:30PM
facts hurt when they are in opposition to your scam
Jun 26, 2012 1:25PM
wakeupnow and socialist 1 are either disgruntled ex-employees or worse. If you two can't stand the guy then just go away! Why must you post everyday? Go write your own stock column and see how "easy"it is. morons!!!!
Jun 26, 2012 1:24PM
Jun 26, 2012 1:24PM



No one listens to you dork!

Jun 26, 2012 1:05PM
wms e bought one of his recommendations morgan stanly dowm 40 % no more please he is atout for somebody always
Jun 26, 2012 1:03PM

never forget the facts:

this hack said buy oil at 105 because it was going to 150

he also recommended gold at 1900


this guy is a crook

Jun 26, 2012 12:45PM

Natural gas is holding at the economic equivalent of the cheapest coal out there, which I believe is Wyoming strip mined.  If fracked wells continue to produce and glut the market, then at these prices more users will choose natural gas over other energy sources.  Considering that you can have both natural gas and diesel for heavy duty vehicles, coal or natural gas possibly for trains, coal or natural gas for power generation; then what is to stop both from being used allowing greater flexiblility.  Something to consider when major decisions are being made.

Jun 26, 2012 12:13PM
stewie = potential customer for the newsletter
Jun 26, 2012 12:12PM


if you think he is credible try following his recommendations


before cramer came on and screwed up my enjoyment of watching the msnbc ticker

i wasn't even aware of his scam


as i was watching the ticker i observed more and more how crooked this arrogant hack was


now i point out his horrible picks everyday on this site hoping to save anyone who is unaware of his scam......i HATE to see hacks make money at other's expense

Jun 26, 2012 12:07PM
just can't stand used car salesmen and the people they make money off
Jun 26, 2012 11:53AM

WakeUpNow07 = Jim Cramer stalker.

socialist 1 = Cramer's ex-wife or a spurned girlfriend.


If you hate the guy so much, why do you read every column he writes and take the time to make comments.  Like you're going to hurt his feelings or something.

Jun 26, 2012 11:32AM

this chump called for 150 dollar oil when it was at 105


how does he keep sucking people in?

Jun 26, 2012 11:08AM
then why hasn't the price at the pump gone down?!?!?!?!!?!?!?
Jun 26, 2012 10:22AM
Oil goes up, oil goes down, gold goes up, gold goes down, so what's new.
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