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Cramer: Oil's weakness is a sign of strength

Oil broke down again to levels not seen since the Great Recession on Thursday, but Jim Cramer wasn't worried.

The last time oil traded in the low $30s was in December 2008. However, that swoon was caused by a decline in demand, thus Cramer did not consider this to be a fair comparison. Current issues stem from a massive supply glut, which remind Cramer more of the early 2000s, when crude was plentiful and traded at $20 a barrel.

What happens if oil returns to those levels?

"I would bet that many of the independent oil companies I follow could spiral into oblivion. Lots of the master limited partnerships would eliminate or slash their distributions. Many natural gas companies would file for reorganization," the "Mad Money" host said.

But maybe, just maybe, it could also raise earnings estimates for 80 percent of the S&P 500.





"If oil's weakness is a sign of anything, it's going to be of economic strength for 317 million Americans who use some form of energy in their day-to-day lives." -Jim Cramer

Many traders view oil's decline as a sign that the world's economies are falling apart. They are worried that the declines in the energy sector will overwhelm the rest of economy, despite the fact that higher oil and gas prices are actually bad for most businesses.

The bottom line is that most businesses are getting a gigantic boost from the decline in oil.

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"That's good, not bad. Go ask the Fed, which would love to see raw costs go lower so it doesn't have to tighten aggressively," Cramer said.

The negative spillover that most have feared just hasn't happened yet, especially the banks. Cramer thinks that banks are actually diversified enough that the wave of oil related defaults won't crush their earnings as it might have in the past.

The negative spillover to employment hasn't happened yet, or there wouldn't have been such robust numbers reported by ADP on Wednesday.

Cramer also anticipates a positive spillover to the real economy when earnings season begins next week.

So, things are not great right now with the issues in China and the Fed raising rates. But maybe it won't be the end of the oil industry if the price of crude plunges to the $20s.

"If oil's weakness is a sign of anything, it's going to be of economic strength for 317 million Americans who use some form of energy in their day-to-day lives, even as those who toil in the oil patch won't be able to make up their own economic losses," Cramer said.

Ultimately, most people are energy consumers — not producers. And sooner or later the companies that benefit from lower oil will see their stocks benefit, too.

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