Yemen unrest impacts oil like never before

Cramer: The 411 on changing oil patterns

Jim Cramer remembers the days when the slightest whiff of unrest in the Middle East could send the price of petroleum through the roof. He has seen unrest in Libya, wars in Iraq and turmoil in Iran—but never before has the Kingdom of Saudi Arabia been threatened from an outside bordering nation.

Yet, all oil could brew up was a couple of bucks above $50 based on the news that the Saudis will defend themselves from a possible attack from Yemen insurgents?

"Welcome to the new world of oil where the United States is going to produce more oil this quarter than any time since 1985, and could be producing far more if the price were headed higher," the "Mad Money" host said.

Cramer sees that this time around, oil is playing a different ballgame than it has in the past. Therefore, investors need to be prepared for different repercussions when it comes to how oil stocks and futures will react.

People watch as a vehicle that belonged to Shi'ite Muslim rebels burns during clashes in Aden, Yemen, March 26, 2015.
Nabeel Quaiti | Reuters

For instance, large Bakken producer Whiting Petroleum just floated 35 million shares in the market just to be able to pay its bills. And there are a few dozen more companies just like Whiting that are using refinanced debt and equity to keep the lights on.

Many producers have taken the strategic approach to cherry picking its best properties and reducing exploration, which is why rig counts have been reduced dramatically.

But Cramer said that the main thing that investors need to know about the oil patch right now is that every time the price of oil goes up, all of these overextended companies sell futures in the market at an oil price that is at or just above breakeven for them.

"In other words, U.S. supply keeps overwhelming demand even in the face of what's happening in Yemen, which shares a very long border with Saudi Arabia," Cramer said.

Many people think that the U.S. is pumping so much oil that it is completely self-sufficient. However, this is not true, Cramer pointed out. The U.S. currently imports 7 million barrels a day, and approximately 1 million of that comes from Saudi Arabia, thanks to long-term contracts in place to provide consistency of crude.

What is important to know is that it is not just the U.S. that is pumping oil like mad. Countries such as Mexico, Canada and Nigeria all are also desperate to supply crude to the American market.

With all of these elements brought together, Cramer wants investors to keep in mind that as long as the political turmoil does not lead to an overthrow of Saudi Arabia—buyers will be met with real sellers.

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Until Europe gets stronger and China's growth stops falling, the "Mad Money" host thinks it will be difficult for the price of oil to explode.

This means that he wants investors to keep the price stability scenario in mind when political instability occurs, and stock futures are down big and oil futures skyrocket.

"It might just be an opportunity to take the other side of the trade," Cramer said.

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