NEW YORK (Real Money) -- Oil's amazing. It's just breaking down in a way that screams deflation.
It's probably the most shocking fall of the year, and I don't know many who got this one right. But I know who got it wrong: Chevron (CVX) - Get Chevron Corporation Report and Exxon (XOM) - Get Exxon Mobil Corporation Report , which is why those rallies were so wrong-headed last Friday after they reported.
I think there are three kinds of oil and gas companies right now. First there are the majors which have spent fortunes with little to show for it and are just now owning up to that. The reason we like Royal Dutch Shell (RDS.A) so much is because that's precisely the attitude it has toward its own spending.
Chevron and Exxon, to me, are still spending, and the bad news is just dawning on them.
The second group is the large independents, companies such as Anadarko (APC) - Get Anadarko Petroleum Corporation Report , Apache (APA) - Get Apache Corporation Report and Noble (NBL) - Get Noble Energy, Inc. (NBL) Report . I think these companies will represent great value eventually, but not until oil really over shoots on the way down. Otherwise they are way too treacherous, because they have no yield support.
Finally there are the natural-gas plays, namely Cabot (COG) - Get Cabot Oil & Gas Corporation Report and Range Resources (RRC) - Get Range Resources Corporation Report . I think these are going to suffer from number cuts despite the rally in natural gas. Our country is flooded with natural gas and the spike in price we have seen is a good place to exit.
The major independents are producing natural gas as a byproduct of their production, according to RBN, my source for all things oil and gas, and that means they have zero cost. How do you compete with zero cost?
So I think that even at these prices, even though these companies have excellent prospects and low cost drilling, their stocks are headed lower.
There was a complacency that set in when Exxon and Chevron didn't get smashed when they reported. That complacency was shattered when oil broke decisively below $80.
Right now oil's hanging on by a thread. I urge you not to be a hero here.
It's just not worth it.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long Royal Dutch Shell.
Editor's Note: This article was originally published at 5:28 a.m. EST on Real Money on Nov. 4.