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Cramer: OPEC has effectively dissolved

Stocks were brought down by a startling decline in crude oil on Monday, leading Jim Cramer to wonder if fossil fuels are the next tobacco stocks.

While the "Mad Money" host has always regarded lower oil prices as being a positive impact for consumers, the reality is they are having a horrendous impact on the stock market.

"Some of that is because many of these energy stocks were owned for their yields at a time when the market has been starved for income," Cramer said.

There have been huge declines in the master limited partnership space, a group that has been known for its large distributions. Cramer thinks this is partly because there is a sense that the group is finished with OPEC even trying to cut down production, and also because the stock of pipeline company Kinder Morgan has been falling apart.

So how did the oil industry fall into such a positive predicament?

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"Lower oil prices aren't helping the market, as they should. Instead they are hurting it because so many individuals are panicking out of both the bad stocks, and the good ones" -Jim Cramer

Cramer still regards lower oil prices as positive since the U.S. is a net importer of energy and a net consumer of gasoline, heating oil and natural gas.

"The answer is that OPEC has effectively dissolved. This oil cartel, founded in 1960 to boost prices, has pretty much been disassembled by its own members because they are so at odds with each other," Cramer said.

Cramer explained his perspective, stating that Saudi Arabia is a rich country that hates Iran, a poor country. The Saudis do not want Iran to get lots of money to rebuild its oil facilities.

Additionally, the Saudis view Iraq as a proxy state for Iran, so it does not support Iraq either. In the meantime, Saudi Arabia does not want to lose market share in the U.S. or Canada, so it makes sense to cut prices to keep those relationships.

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That means that the world's largest economy is the winner in a scenario where the Saudis want to give the gift of cheap oil.

The problem is that Cramer sees big institutions walking away from all fossil fuel stocks, especially with global warming as a hot topic. Any climate conference will prompt portfolio managers to steer clear of the sector.

But the bigger problem is with the pipeline companies. While many pipelines are doing just fine, these types of companies rely on the need for more pipelines to be built in areas where oil drilling occurs. The U.S. has stopped a lot of its drilling because the Saudis are flooding the world with oil.

So the build out of new pipelines won't work if the drilling isn't happening. As a result, many areas are over-piped. The massive decline in Kinder Morgan is evidence of this, as many fear that it will cut its dividend.

"Lower oil prices aren't helping the market, as they should. Instead they are hurting it because so many individuals are panicking out of both the bad stocks, and the good ones," Cramer said. (Tweet This)

Cramer recommended for investors to allow the selling to occur, until it stops. Then it will be safe enough to pull the trigger on high-quality stocks at bargain prices.

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