Oil seems to be playing limbo these days, with a game of just how low can it go. Jim Cramer views this as a position of panic, where everything will overreact and overshoot, including oil, and that is exactly what is happening right now.
There is a lot of oil sloshing around right now. Saudi Arabia continues to pump oil instead of cut production, and Cramer thinks they will keep on pumping away to take a price hit right now in order to drive down oil prices so that the U.S. doesn't become energy independent. Meanwhile, Libya is also putting out more oil than what the market expected, and the US continues full steam ahead adding more than a million barrels a year to the market place.
The fact of the matter, the supply is now overwhelming demand. Cramer sees that there just aren't enough storage tanks, refineries and oil tanks to put all of this oil in the U.S. On Tuesday, Cramer spoke with the CEO of Continental Resources, Harold Hamm, as well as the CEO of Cheniere Energy, Charif Souki.
Continental Resources is the largest player in the Bakken Shale, and Hamm did not rule out that oil can trade through the $70s. On the opposing perspective, Souki ruled it in, stating "I think the price of oil could go to $70, and maybe even lower. You need to look at will the U.S. export oil or not, because we seemed to be saturated with staying in the United States right now. The infrastructure simply cannot take the oil anymore from production to the refineries. We have saturated the ability to move one place to another."
So what is down the pipeline for oil next? With the Saudi's flooding the market, Cramer believes this will kill the U.S. drilling programs and over-leveraged oil companies will go bust. Pipelines will not be built because the producers can't pay the bills. Eventually the Saudi's will hit rock bottom on a price that is intolerable and will take out spare capacity. Then storage space will come back, and refineries that were once closed will re-open.
Cramer is certainly no bull on oil, and thinks the stocks can fall further. "But I do have to say that the same people who thought oil was going through the roof now think it is falling through the floor, and that is encouraging."
He also sees that major projects by the big players will get canceled, much like the $12 billion project canceled by Chevron for an Indonesian deep water gas project that was canceled on Monday. To make matters worse, he also thinks Putin in Russia will cut off drilling in some of the largest oil fields in the world.
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One important point that seems to be muted by investor panic, is that the "Mad Money" host thinks some are misjudging the demand of oil. He thinks that oil that is cheap will get used. Countries that are oil starved and switching fuels, will eventually switch back.
"Things will correct back, but not until they overshoot," Cramer said. They will most likely be aided by a short-term decline in oil consumption, as travel and leisure stocks are cut back by Ebola fears.
In the end, Cramer said that there will be plenty of winners from oil. "No need to speculate on a bottom of oil, yet. But there will come a time when the majors are going to be too cheap to ignore."
When that happens, investors can then gobble them up and enjoy the dividends in peace.
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