Cramer spells out oil's worst case scenarios

At what point are oil prices too low to keep helping the stock market go higher?

Jim Cramer thinks we have found it, with declines across the board seen in the Dow, S&P and NASDAQ. Sellers are worried that there could be something lurking under those plummeting prices of oil, even as there was a $3 rebound from the hideous oil session on Friday.

But could it be that bad? Let's say that oil really, really tanks due to excessive supply, mainly in the United States, and the low demand from China's slowing growth and European weakness continues.

What are the worst case scenarios that could occur? The "Mad Money" host shared his take on the repercussions of low energy prices, to set the stage for what investors should expect.

Read MoreWhat the US should do to fight this 'oil war'

A floor hand for Raven Drilling, pauses while drilling for oil in the Bakken shale formation outside Watford City, N.D.
Getty Images
A floor hand for Raven Drilling, pauses while drilling for oil in the Bakken shale formation outside Watford City, N.D.

Rails: There are certainly ramifications of low energy prices beyond production. Oil companies use rails in places where there is no pipeline capacity. With the decline in crude, it will become too expensive to drill in places with no pipelines.

Industrials: These companies are getting hit hard, including General Electric, which has been noticeably present in the oil patch, and Dover, which was just downgraded from a hold to a sell.

Credit: "I don't want to finger any one company because we don't know how they're hedged, and we don't want to cause a panic. But there are stocks down 30, 40 and 50 percent in a matter of weeks and it's not because they're oil and gas companies. It's because they've borrowed a lot of money to drill, more than their current cash flow can cover," said Cramer.

The extended credit could cause a real issue if stocks don't come back up.

However, there are positive ripple effects to gasoline that Cramer thinks we cannot forget about. Gasoline is always a large expense for companies that need to get their products on the market. That means the numbers will favor those companies.

The "Mad Money" host said the savings to the consumer far outweigh the oil producers' losses, even considering the hundreds of thousands of workers employed there.

So what is Cramer worried about? The negative ripple effect from overseas. If the collapse of Cyprus could affect the banks in the U.S., then a collapse in oil-dependent Russia certainly could have a large impact.

Oil prices dropping are just a symptom to indicate that it is getting worse. That could have a positive effect on the U.S. economy, though.

"They sell on their weakness, particularly their currency's weakness regardless of the stocks they're associated with, and they buy our dollar's strength with bonds and stocks."

So while Cramer does think there are many downstream repercussions, he still believes it could be time to buy those stocks that are direct beneficiaries to cheap gasoline.

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"In the end though, the money flows here, and therefore any decline is buyable after a couple of sessions of weakness," Cramer said.

The "Mad Money" host recommends buying stocks that are not so economically sensitive, such as health care, biotech or travel and leisure stocks.

The chain reaction to low oil is just too good for Cramer to ignore. Yes, there will be a downside, too, but he thinks that downside is manageable. Now is the time to buy on oil's weakness.

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