Oil 101 and How the War in the Middle East Affects the Market with Legendary Oil Trader Mark Fisher

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3:15Even if you don't work on Wall Street, if you want to be a savvy investor, or even if you just own a car, you need to understand the oil market. And it is a weird one. It's a tricky one. But today we're decoding that with the legend of all legends in the oil world, Mark Fisher, CEO of MBF Clearing Corp. Mark is a big deal in this space, and he's the perfect person to explain how the heck the oil markets work, what are the variables affecting it, and what's going to happen with the election and the war in the Middle East. Whether you're trying to be a day trader or just get really smart about the forces that move the markets, this is for you.

3:49Mark Fisher, welcome to Money Rehab. Thank you for having me. Fish. I can call you Fish. Hey, where else is? Okay. So originally we were going to chat on Monday a couple of weeks ago when the market was freaking out. The market has since recovered, actually, and then some, but you still see lingering effects of this mess, or do you think the worst is still to come? The worst is always still to come. It's just a matter of how you define the worst, Nicole, because what happened a couple of weeks ago when the volatility spiked and everything else is the market has these uproars all the time. It's just a matter of how you define the uproar.

4:22But this is going to happen time and time again, especially with all the chaos in our election process, chaos in the environment, chaos going on in Israel, chaos in Russia. This is just the opening act. So how do you define the worst? The worst to me would be something that, you know, has not had to happen, which would obviously be nuclear conflict. Besides that, you know, everything else, the markets basically digest everything. Because what typically happens is, think about what happened a couple weeks ago. The minute Iran started lobbing missiles at Israel and everyone thought the price of oil was going to go bananas, it didn't.

4:58Why? Because Saudi Arabia in the Middle East doesn't want the price of oil to go up right now for a lot of reasons. One, they want U.S. protection. Number two, they want to make sure the markets remain calm, right? So basically, anytime Saudi Arabia wants it, they can cap the price, which is what they did. The only way that couldn't happen is if Iran was to close the strait of Homo, besides that, they have the ability to cap the price of oil. Saudi Arabia is a shrink producer and they have all the incremental barrels. Currently, right now, with the political election coming up and with Saudi Arabia wanting to get a security agreement in the United States, there's no way they're going to allow the price of oil to get above, you know, in the United States, above$80,$85 a barrel until after the election, number one.

5:38Unless there's a real test show, like, you know, if Iran or the Hooties closed the straight up from us. Other than that, the price of oil is going to get capped. On the other hand, once, and hopefully sooner rather than later, when there's a peace agreement or a ceasefire in Israel, right, and Gaza has to be reconstructed, who's going to pay for the reconstruction of Gaza? It's going to be the oil consumer, because they're going to end up raising the price of oil by$10 a barrel at least to go ahead and pay, you know, whether it be a consortium of the UAE, Saudi Arabia, whoever it may be, the United States.

6:12It's all going to get raised to the price of oil, and that's going to raise the floor of the price of oil. But for right now, barring a disruption in the Gulf and also barricade, which would affect the refineries in our Gulf, right? Price was stuck in a range. But again, this is not going to last forever. Okay. Well, I'm so glad you're here because you will forget more than anyone I think will ever know about energy. That's your thing. So let's step back because you gave us a lot of good information about the Strait of Hormuz and all the things, right? But if you could tell listeners, just a little oil 101 first.

6:47Something I hear from new investors a lot is that they don't even know how to check how oil is doing, right? If you want to know how Apple stock is doing, you type in AAPL, you see what Apple stock is doing, and that's it. But if someone wants to temper check what's going on with oil, how should they start? If I was a novice investor, the easiest way to do is to go to the CME website, Chicago Marketplace Exchange website. That's where I started my career. type in the price of oil, or go to the Intercontinental Exchange, type in the price of Brent or crude oil, and you'll get all the prices there for what happened that day.

7:21If I really want to go ahead and track the price of oil without looking at futures prices, on the New York Stock Exchange, there's a USO product that basically mimics the front month of crude oil. You can just type in symbol USO, and that will basically track the price of oil, but it won't give you the price of oil. So that's a stock that goes up and down based on the price of oil, but it doesn't tell you the prices being$80 or$75 or$90 or$60. When you talk about oil, are you talking about crude oil? Can you define what that is? Crude oil is what makes the world go round. Crude oil is the energy source that we use to go ahead and that gets refined into gasoline, heating oil, jet fuel, and all those different products that everyday Americans and every consumer needs.

8:08Crude oil itself is just the input. It then has to be refined in a refinery. And I think you live in California, right? Okay. So in California, there were refineries that are owned by, let's say, Chevron, who just left the state, by the way, because of all the regulations in California, which is a story for another time. And these refineries crack, or basically in layman's terms, take the crude oil, process it and make it into heating oil, jet fuel, synthetics, gasoline, and everything else. And that's what you buy when you go to the gas station. But without that input, you're not going to be able to produce that stuff.

8:44Right. If you're not an energy trader, you're going to get energy exposure through energy stocks, right? But there are so many and a lot included there. Can you give us some examples of the different varieties of energy stocks or how you can get exposure? There are big companies like ExxonMobil and Chevron that basically do everything. There are companies that just participate in drilling. There are companies that just participate in refining the products, which are my favorites, like the Valero, Marathons, PBFs of the world. There's also MLPs, Master Limited Partnerships, that concentrate on different parts of the natural gas market, which is a different instrument than obviously crude oil.

9:26There's also people that actually make the drilling equipment to drill foil, like Schlumberger and Halliburton and companies like that. So there's all different. It depends how general or how specific you want to get. Why are refineries your favorites? And what are some of the tickers that you're talking about? Refineries are my favorite, and I'll tell you why. Everyone thinks that we're going to go ahead and go to clean energy in the next 15 years. I don't think so. I think it's going to take 50 years, if that much, because the price tag to go to clean energy is just right now is still too high.

10:01So right now, if you're not going to have clean energy and you can still rely on what I call the old gas gas station, right? You need companies that take crude oil and refine it into the products, which we said gasoline, heating oil and stuff that you use. However, there are not many new refiners ever being built because they know it's, one, a very regulated business. The environmentalists are all over it. And who wants to go into business where 20 years from now you can be out of business? So basically, these refiners have a monopoly on what they do, a quasi-monopoly. They don't set the price, but there's nobody else coming into business.

10:40So if you were to go into business, Nicole, where you know that there was limited competition and the world thought you were only going to be in business for 15 years, but I think you're going to be in business for more than 50 years and no one else is coming in, right? And everybody doesn't like you, but they need you, right? That's the, right, right? What's going to happen, right? And if you shut down, the world's much worse off, right? To me, that's a business long-term you want to be in. Now, can the refinery margins, the difference between the price of gasoline and the price of crude oil go up and down?

11:13Yes, right now it's depressed. but inevitably a business that you basically have a moat around it because no one's getting into the business right but everyone needs it right aren't those the best businesses to be in things that everyone needs especially if you're the only you know if you're one of the only games in town it's a little supply and demand what what are we talking about like what stocks and what companies i don't like to recommend individual stocks because you know i'm not a stock guy right But if you can look up the tickers, there's Valero, MPC, there's a whole bunch of them. And again, I would encourage anyone to do their own research because I'm not hawking this.

11:49But the industry itself, to me, is a necessity. It's essential. And people think it's only going to be essential for 10 years. And I think that's for 10, 15 years. And I think it's going to be essential for a hell of a lot longer. So if you feel that there's a business like that, that's why I think it's viable. And what about renewables? I don't know enough about renewables. But I can tell you one thing. Let's talk about renewables for a second. What happened in Texas three years ago, four years ago? So what happened in Texas was - What happened in Texas? So the price of ERCOT, which is electricity and power, was, let's say, about$50,$60 a megawatt, which is what it was during the winter.

12:26And then they had this crazy storm come. And everyone's saying, well, you're counting on the renewables, wind, solar. But what happened is they weren't prepared and they didn't do enough maintenance on it. And the storm came. And what happened to the wind turbines? They all shut down. What happened to solar? It didn't work. And the price of power in Texas for that week went from$60 a megawatt to$9 ,000. So all these companies in Texas who were basically suppliers who were middlemen end up going broke. Now they've corrected the situation going forward so that hopefully it won't happen to that degree again.

13:06But again, it's not about having renewals. It's about having reliable renewals. All these wind projects throughout the country are not, are all shutting down because A, number one, they're not reliable. Two, they're overregulated. And three, some of them just don't work, right? So, yes, should we go to clean energy? Should we go to, yeah, but we need reliable energy. And I don't think we're yet there to do this. Think about this. Solar power is great when the sun's out. But until there's a battery storage mechanism that can do it when the sun's not there, what happens, right? Do we have enough reliable, clean energy?

13:45What happens to the most reliable clean energy that everyone's scared of is nuclear. And everyone's afraid of it. That goes under the slogan of NIMBY, not in my backyard. Everybody wants it, but nobody wants a nuclear power plant. Can you explain what nuclear energy is and why people think that it's a nuclear bomb and are scared of it? It's because it happened in Chernobyl. Everyone's afraid that they're going to wake up and there's going to be a Chernobyl in the backyard. You know, how the isotope works. I was a business major. I'm not an engineer. But, you know, obviously it's clean energy, right?

14:16Right. But everyone's afraid of a catastrophe. You know, it's all perception rather than reality. I mean, you know, knock on wood, we really haven't had an issue like that in a long time. But that's the problem. That's the cleanest. And by the way, more and more companies and more and more countries are embracing nuclear energy. I think Biden just put out a platform about, you know, just recently. and to do that, you need uranium. Since more and more countries now are embracing nuclear energy, what do you think has happened to the price of uranium in the past three years? It's gone up. There's no free lunch.

14:52Anything we do in clean energy is going to cost money. Anything in clean energy is going to end up costing the consumer more. It's going to be somewhat inflationary. For instance, everyone talks about the electric vehicles. The electric vehicles themselves, the batteries and everything else that drive these vehicles to produce them, create, need a tremendous amount of energy to create them. And they have, you know, so there's all costs and benefit analysis of the whole process. Hold on to your wallets. Money Rehab will be right back. And now for some more Money Rehab. Let's talk about generally how energy stocks, the sector moves.

15:36You know, tech, for example, tends to go up when interest rates go down. What about oil and interest rates? And what about the relationship between oil and the dollar? There's no there's no relationship between oil and interest rates that I know of. But I think there's a relationship between oil and recessions, because obviously everyone thinks like, for instance, if we're going into a recession, there's going to be less usage of cars and people going to cut back. So typically that's what happens. if you remember a couple of years ago during COVID when everyone felt that there was an oversupply of oil and oil prices went negative for a day, which is that thing about that.

16:08They paid you to take energy, right? I mean, again, that happens a lot of times by the way in natural gas, which is to me would be the solution because CNG, which is combustible natural gas, should be the way we should drive our cars, but the world doesn't really accept that because natural gas is much safer for the environment, much better than coal or crude oil. But yet again, the problem with natural gas is where we have it all, like in the Permian and everything else in Texas and other areas, you need to transport that through pipes. If there's not enough pipelines mechanism to ship it, then it just lays idle and natural gas has gone negative.

16:45But if it looked like in Boston, do you have any friends in Boston? I mean, yeah, I have friends in all sorts of places. You don't have to tell me who they are. Okay, you have friends in Boston. But in Boston, there's no pipelines going into Boston. So there in the winters, okay, the price of natural gas, when the rest of the country can be$3, the price in Boston can be$20, not because the country doesn't have enough natural gas, but there's not enough pipelines going into Boston. You have these shortages all the time, and then you have to ship it in biology. So it's a little complex, but it's also because there's not enough pipelines into Boston because of environmental reasons.

17:21But again, so you can have prices of energy in parts of the country being five times the prices of other prices in the energy. The same way, why does gasoline cost more in California than it does in, I don't know, Florida or Texas? Because we have a lot of regulations and stuff. Right. There's a lot of regulation and there's no refineries and there's all the rest. Crazy story. In my middle school, there was like an oil rig on the campus and it was covered and the kids painted over it. Yeah. Weird. And the reason that is because they got paid a royalty. You know, someone got paid a royalty every day when they were taking, extracting oil from that rig.

17:56Today, there would be no way in hell that there would be an oil rig in the middle of a school. I don't think that's really safe. But anyway, there is, though, a clear relationship between oil and the dollar. Can you explain how this moves? Well, oil is priced in dollars right now. So let's talk about this. OK, let's talk about Japan. Up until recently, the Japanese currency has been getting walloped. right now the bank of japan has stepped in to normalize that in japan yeah but think about this the yen has gone down 40 or 30 some number in the last couple years against the dollar so if you have to go ahead and buy oil which is priced in dollars in yen what's happened to the price of oil in japan it's basically gone up 40 because people have to pay for it in a depreciated currency.

18:43So again, there's a big relationship. So if the dollar gets cheaper relative to other currencies, then foreign markets are going to go ahead and buy more oil because it's relatively cheaper for them. If the dollar gets more expensive and you have to pay more yen or more euro or more, I know, Zimbabwe dollar for it or annual, that's a whole story from another time. Okay. Then you're going to cut back your age because you just can't afford it. You went on CNBC earlier this month and you said that we're approaching the bottom of the energy trade. What do you mean by that? And why do you know what I said was that this was a very bullish period to trade to day trade energies from the long side.

19:22What I also said is that next year, we're probably going to go ahead. We've been stuck in a range, OK, of like 70 to 85. And I think next year, especially post-election, especially post, hopefully, some type of resolution in Israel, that the market's going to trade below 70 and above 85. Because once there's a, the whole market is short right now. There's nobody really long. Most of the speculators are short for the first time. And the market usually goes up the most when everyone's short, right? Because if everyone's long, then, you know, people get out. But on the other hand, I think that the market next year is going to get, at some point, is going to trade below 70 and above 85.

20:01So this band that we've been stuck in for the past year and a half is going to go away. So which means this will be volatile. And if you're a trader of anything, I don't care if you trade stocks, currencies, Barbie dolls, whatever you trade, okay? You trade Legos. It doesn't matter. All a trader wants is volatility because the way you lose money if you're a trader, okay, is that things just are just dead. You just want things to move. At least that's what we want. Not long-term investors, but traders, to be clear. And by the way, don't know, no, no, because literally the headline from Closing Bell was Mark Fisher says this moment will be the bottom of the energy trade.

20:40The bottom of the copywriters. The bottom of the energy trade to me is when there's a ceasefire. Let's think what's going to let's go through it, because, again, play chess. OK, there's a ceasefire. OK, and it's hopefully it holds. Okay, now they have to spend, what is it? They estimate$70 billion to reconstruct Gaza and the West Brim. Where's that money coming from? You think Saudi or UAE is just going to say, okay, here's a check. You think the United States is writing a check? No. You think Israel is writing a check? No. So in the end of the day, how is that getting financed? That's getting financed because they're going to raise the price of oil, right?

21:17They're going to raise the price of oil by$5,$10,$15, whatever it may be. and you and I, along with everyone on your show, are going to go ahead and go to this, are going to pay that price. Past that. To me, that's just inevitable. But it's hard to predict what's going to happen there. I mean, doesn't the war in the Middle East make it difficult to predict where oil is going to go in the short term? That's why I said when there's a ceasefire. I don't know when it's going to be. Hopefully it was today, but it doesn't look that way. But when that ceasefire occurs, 48 hours after that, to me, would be the bomb.

21:51I'd probably be the bomb to buy energy stocks and everything else. By the way, you know one thing. Whatever people think works in the market, whatever makes sense doesn't make money. Because if everyone can make money, whatever makes sense, we'd all be multi-zillionaires. The same way that if everything made sense and everyone went to Harvard or Wharton or Yale or Stanford would be a multi-zillionaire, and that's not the case. It's thinking out of the box, thinking six steps ahead. If I said to you, if I called up 20 traders and said, why is oil up today? Or why is StockX up today? And they all gave me a reason, right?

22:25It's not going up much more. But if I called up 20 people and said, why is StockX up today? They said, I have no idea. That stock's usually going up a lot more. It's when people figure out why it's going up or something's going up, that usually that's the time. I mean, I'm all convoluted. I'm a little insane, as you can probably tell. But that's the way we think. I'm well aware that you're insane. But I also really think that your thoughts on energy are super spot on. And we could ask a lot of people, but we're asking you because of that. Also, you mentioned the election. Obviously, there's always volatility on election years, regardless of Trump or Harris's actual platforms on oil.

23:01We haven't really seen much clarity there. The street expects oil to go up when a Republican generally is in office. Is that the same case? No, not with Trump, because everyone thinks that with Trump, he's just going to let drill baby drill. Although we are with drilling. We're producing more oil now than we've ever produced, even under the Biden administration. It's going to come down to the swing producers. It's also going to come down to what happens in Venezuela to some degree. Venezuela, what's going to happen in for a while there, it looked like we were going to go ahead and somewhat normalize relations in Venezuela until Maduro went off the reservation again in this last election.

23:40It's what's happening in Guyana, where we found this huge oil fine that they're now just putting the pedal to the metal to produce as much as possible. But I don't necessarily think that the market thinks that if Trump wins, that the price of oil is going up. I think they feel if Trump wins, volatility everywhere is going to go up because of the wild card of what would happen under his administration. But I think that would happen under whoever's the president. That's going to happen. It's just a regulation question. Yeah. You know, I think businesses that get regulated end up having to unnecessarily charge more money for the same product that they have because they get regulated to death.

24:21Doesn't matter what it is, could be oil or anything else. You mentioned some index funds. If there's a new investor who wants to dabble in energy, what are some of the basics that they should take a look at? Not that you're recommending them. I know you're insane. If you want to trade the price of oil, you trade USO. If you want to trade an index of stocks, you trade XLE, right? Which is an index of energy stocks, right? That's what I would do in that case. Do you want to play a game with me? Why not? I don't sound so excited. This is a game called bullish or bearish. Oh, no. You're going to tell me, are you bullish on this, bearish on this?