With so many factors swirling in the oil patch right now concerning OPEC, production freezes, Russia and Iran, Cramer pointed to the massive inventory of crude as the most important issue on traders' minds.
The U.S. crude inventory rose to 528 million barrels in the latest weekly petroleum status report, the largest since record keeping began.
"That is what is driving the massive liquidation we are currently seeing. The speculators must have believed that OPEC would starve the market and we would stop producing at levels that weren't economic for most of our exploration and production companies," Cramer said.
Turns out the speculators were wrong on both accounts. Cramer does not think that OPEC is cheating, and doesn't think it is voluntarily holding back more oil than it said it would.
Cramer also does not predict that oil will go back to the $30s again, thanks to innovation in technology that allows producers to get more out of the ground for less. Back when oil was in the $50s, producers were selling oil to raise funds for drilling plans. With oil in the $40s, which is breakeven for a lot of producers, companies can cut back on all but for the most lucrative patches in the Permian Basin and Oklahoma.
On Thursday, Marathon Oil sold its Canadian oil sands subsidiary for $2.5 billion, and then took $1.1 billion to buy 70,000 acres in the Permian, including 51,500 in the best part of the Permian, in the Delaware basin.
"That is a sign that you still want to be buying stocks in companies located there, as well as the service companies and pipelines being built there," Cramer said.
He recommended using the break in oil prices to snap up stocks in that region and to remember that when too many speculators lean to one side of the trade, it's best to run the other way and take the others side of the trade.
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