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Cramer: Where oil will bottom in 2016

Jim Cramer reminded investors just how important a company like Schlumberger is to the future of the oil patch. In fact, he attributed Friday's rally in crude to Schlumberger, which prompted him to believe that oil could find a bottom in 2016.

"What the heck made that rebound possible, and why do I expect that the $25 to $26 level might turn out to be a floor for crude?" the "Mad Money" host asked.

It all came down to the very moment that oil service company Schlumberger reported a fantastic quarter on Thursday, and spoke on its conference call Friday. The company confirmed that many oil players had drastically reduced spending, and cutbacks in production for places like Colombia, Mexico, Brazil and Australia.

"Given the enormous breadth of Schlumberger, and the excellence of its management team, this company's comments on the oil market carry more weight than pretty much anyone else out there," Cramer said.





An oil rigger at a Schlumberger field prepares pipes in Midland, Texas.
Kirk McKoy | Los Angeles Times | Getty Images
An oil rigger at a Schlumberger field prepares pipes in Midland, Texas.

The cherry on top was when Schlumberger was negative about additional exploration and production. That was good news for oil prices this year, because that could reduce the amount of oil supply.

Schlumberger also confirmed that demand for oil remained strong, despite rumors in China. That calmed any fears Cramer had that oil could potentially drop to $10 the way it did in 1986.

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Given the fantastic cash generation that Schlumberger has, Cramer considered this stock a buy into weakness.

However, this news does not necessarily bode well for the stretched domestic oil companies. Cramer believes that the chief reason why the price of oil will be able to bottom in 2016 is because of the destruction that will hit so many of Schlumberger's clients.

"If you're buying anything but the majors, you might be buying the stocks of companies that may not make it to the promised land, especially because Schlumberger is not calling for any sort of dramatic recovery in oil prices," Cramer said.

Ultimately, Cramer thinks that the demand and supply will finally fall into balance in 2016. He would not go long on oil or oil stocks yet, though.

"Other than perhaps a trading bounce to the $34 to $35 range, this call can't get you any further. After listening to the company called Slob though, I think oil holds in the $20s and bottoms at last in 2016," Cramer said.

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