Oil Is Too Big To Fail: UCO, XLE, BP, FSLR, SPWRA

June 03, 2010, 08:20 am ET, BY Patrick- Contributor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

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After numerous failed attempts by British Petroleum (NYSE: BP) to plug the well hole at the bottom of the Gulf of Mexico, crude oil continues to flow unabated with no end in sight. The possibility that this crisis will not be resolved until a relief well is built in August is looking increasingly likely. As each day passes by, the cries for clean energy alternatives get louder and louder. The disaster has also acted as a rallying cry for the Democratic Party to move the nation’s energy policy further away from drilling. This was punctuated on June 2 when President Obama stated, “The time has now come to fully embrace a clean energy future.” After the statement hit the wires, stocks such as First Solar (Nasdaq: FSLR) and SunPower (Nasdaq: SPWRA) popped a bit higher.

Too Big To Fail

While it’s preferable to imagine a world without massive oil spills, OPEC, and car emissions, the truth is, global economies are – and will continue to be – reliant on crude oil. That is, at least for the foreseeable future. The United States consumes over 4.9 million barrels of crude per day. As a percent of total energy consumption, renewable energy accounts for only around 7% of the total, while petroleum is still at about 40%.The numbers for China are even more staggering. According to the U.S. Energy Information Administration, that country will consume an astounding 8.2 million barrels of oil per day this year. In other words, the usage gap between the two sources is so large that, whether we like it or not, crude oil will remain a necessary evil.

Additionally, given that regulations on drilling are likely to get much tighter, and new exploration opportunities will be pushed to the back burner, oil supplies could decline materially in the future. Assuming the economy doesn’t tail spin, this should lead to higher crude prices. With these factors in mind, some investors and traders look at the 35% one month drop for the ProShares Ultra DJ-UBS Crude Oil ETF (NYSE: UCO) – which takes a double long position of the DJ-UBS Crude Oil Sub Index -- as a compelling buying

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