Mad Money

Cramer: Oil problems are bigger than just Saudis

Cramer: Perfect storm causing lower oil
VIDEO4:2104:21
Cramer: Perfect storm causing lower oil

The market can no longer ignore the elephant in the room: Oil is going down. WTI crude reached its lowest level since August 2011 on Tuesday, which left many investors wondering, "What is going on?"

Jim Cramer smelled a big, fat, floppy oil fish. Could it really be just the Saudis stirring the pot or is there more to this story behind the scenes?

"Believe me it's not just the Saudis' decision to cut prices that is causing oil to go down. The Saudis don't export enough to us … to destroy our booming domestic drilling industry," said the "Mad Money" host.

Cramer added that there is a perfect storm of issues happening. First, there is the weakening global economy. The world outside of the U.S. is weakening, which means oil is getting cheaper as well. Additionally, the U.S. is still importing oil.

In the long term, the Saudis can flood the market to reduce drilling, but they wouldn't be able to dump as much oil into the U.S. if global economies were stronger and able to use more oil.

To top it off, oil is priced in U.S. dollars. That makes oil more expensive for the world as our currency gains strength. Europe isn't exactly getting a deal on oil if the Euro is weakening.

Don Klumpp | Getty Images

The second issue stems from overproduction of oil in the U.S. There has been a 71 percent increase in oil production since 2005, along with increased popularity of fuel-efficient cars and trucks.

"We do not have the storage space nor the pipelines to get this oil to market, and the price discounts that are available in our country are, in the most landlocked places, well below whatever the Saudis are charging," said Cramer.

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The U.S. has reached its tipping point for the amount of oil that can build up. That, combined with the weakening global economy, is creating the perfect storm for oil prices.

So, while it would make things a lot easier to just blame the Saudis, Cramer just doesn't think that is the case. The good news is that there will obviously be a self-correcting price somewhere. It just isn't going to be in the mid-70's.

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