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Extreme volatility in the energy market could be one of the less obvious causes of the stock market's broad-based sell-off, and there could be more pain to come, CNBC's Jim Cramer warned Tuesday as the Dow Jones Industrial Average erased its gains for the year.
"You can't understand this breakdown in the stock market unless you recognize that we're seeing some spillover from the carnage in the oil futures," he said after consulting with his top commodity expert, Carley Garner.
"You have tons of money managers with staggering losses in, say, the oil futures," Cramer said on "Mad Money." "If their investors want out or they just need to raise capital to meet the broker's margin calls, they need to sell something, and that often is stocks."
Oil prices fell sharply Tuesday on fears of a supply glut and a slowing economy, with U.S. West Texas Intermediate crude hitting a one-year low. Crude futures have dropped dramatically in the last month as U.S. crude prices plunged as much as 30 percent from a four-year high.
Garner, the co-founder of DeCarley Trading and author of Higher Probability Commodity Trading, "believes much of the recent weakness in equities can actually be blamed on shortsighted managers liquidating stocks to pay for these commodity market margin calls," Cramer said. "By the way, that's why you should never, ever buy anything on margin."
And Garner doesn't think oil prices are out of the woods yet. Besides the fact that the end of the year tends to be tough for oil prices, which usually peak in October and hit bottom in January or February, she worried that too many investors are still heavily invested in oil futures.
According to the Commodity Futures Trading Commission's "Commitments of Traders" report, money managers, small speculators and commercial hedgers still have substantial long positions in West Texas crude futures, she noted.
"This has been a very crowded trade for a long time. That's why Garner's been warning us nearly all year that lower oil prices could be in the cards," Cramer said. "Large speculators were net long roughly 230,000 contracts as of this latest reading. [...] That's down dramatically from 730,000 at the peak — the largest net long position, by the way, in history (how wrong were those people?) — it's not down enough to make Garner believe we're ready to bottom."
Adding to that, the Consensus Bullish Index, a sentiment gauge, suggests that investors could still get more negative on oil, Garner said. Considering the past swings she's seen in oil prices, she said the commodity still has more downside, with one floor of support at $51 a barrel and another at $42.
"Here's the problem: despite the recent meltdown, Garner points out that the oil futures, amazingly, are still not oversold, meaning they haven't actually gone down so far so fast that they're due for a bounce," the "Mad Money" host said.
And while Garner doesn't think it's very likely that oil prices fall to the low $40s — where Cramer has predicted they could go — she warned that the $51 level will only hold if the fundamentals of the oil space significantly improve.
All in all, her charts "suggest that oil could have some more downside, which therefore could lead to still more ... selling of stock because of the margin calls," Cramer said. "You know what? Maybe this will help the Fed to adopt my one-and-wait stance. "