Is The Oil Crisis Over? Or Is It Just Beginning?

0:01Travis Hoium:Is Nike coming back into fashion? Motley Fool Hidden Gems Investing starts now.

0:09Travis Hoium:Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium joined today by Lou Whiteman and our special guest, Tyler Crowe. Guys, we're going to get to Nike. Nike stock was down pretty big after the market closed yesterday after they reported earnings and now it's shockingly up today. We'll get to that a little bit later. But I wanted to start with an area of the market that we don't talk about all that much, but it's actually a huge deal for consumers, for the economy overall, and that's oil. And Tyler, this is a commodity that we thought was going to be a huge problem for the economy by this time in 2026.

0:45Travis Hoium:When the Strait of Hormuz closed, we were supposed to have$200 barrels of oil. Oil is still up for the year, up about 20 % for the year, but we're down to about$70 a barrel for West Texas Intermediate. What is going on with the oil market? Is the fear, did that just never materialize into the economic concerns that we thought they were going to? And is this whole thing over?

1:07Tyler Crowe:Well, I mean, talk about a loaded question here. I think one of the things with the initial fears so much of this was basically this, you know, for a lot of commodity traders, this was considered the doomsday scenario. But some of the things that ended up happening were, you know, with a lot of investing decisions and major global geopolitical reactions, there was a lot of like second or third order, like knock on effects that sort of affected this in some sort of ways. for one like we started this war or conflict however you want to label it with this with this closure of the straighter form moves where not too long after it was like oh we're going to open it back up either we're going to open it up by force we're going to start negotiating and then there's just been this tit or tat it seems like for two or three months now of you know negotiators have started negotiated so we're going to open it and there's been a lot of like okay this is temporary, we can get through this.

2:05Tyler Crowe:And as we came into the crisis, there was actually quite a bit of surplus oil on the market. Like we were actually oversupplied relative to demand in the market. So we were in a kind of a position of strength on the market. And at the same time, there was a lot of unprecedented changes that we saw. Yeah. I mean, over this period so far, about 1.3 billion barrels have been drawn down from strategic petroleum reserves around the world, whether in the U.S., in Europe, Japan. And that's been a major buffer for this. And not to mention what China has done as well, because demand imports from there have also fallen off a cliff.

2:44Travis Hoium:But isn't that kind of like a Band-Aid for the market?

2:50Tyler Crowe:Maybe. This is the really hard thing to say, because one of the things that is not necessarily known is how much oil in storage or how much does China have? You know, there are some what they call floating tank storages where that you can actually monitor. And that's been like, you know, using satellite imagery data, people have been able to do this because obviously China does not publish their strategic petroleum reserves, but they also have these massive underground caverns that nobody really knows how much is in there at any given moment. And so it's been using those as a massive drawdown.

3:23Tyler Crowe:And they were reducing their total amount of imports at the time at about 5 million barrels per day. And so when you started thinking about a 13 million barrel per day gap that was leaving the Strait of Hormuz, taking five out was a huge chunk. And you start adding in SPR releases, you saw demand destruction, other parts of the world. it has somewhat deflected the blow that I think a lot of people had seen so far.

3:51Travis Hoium:Lou, I remember talking about this a few months ago. And one of the things that we talked about was you just don't know what the second and third order effects were. And we were talking about that in a negative way. But it seems like the market has been, I think the word that you used was resilient in ways that we maybe didn't anticipate.

4:09Lou Whiteman:Yeah, certainly. I think we've learned that maybe we have evolved some on oil. But I just underline what Tyler said. China is the most interesting story here. And China probably saved us all a ton. As Tyler said, fortunately, we were a wash and oil going in, which made it easier. But something weird and we may never know. I mean, my pet theory is with China is that they have been building a bigger stockpile than we realized for a long time simply because they wanted, you know, if mischief happened in Taiwan or something or if they were cut off, you know, just to have it. And they decided it was not their best interest as exporters to see the global economy crash.

4:52Lou Whiteman:So it wasn't really benevolent, but they had the oil and they decided not to draw the oil so others could. Look, the big takeaway here is we can survive these things, but I don't know if we want to press our luck and try it again.

5:10Travis Hoium:I want to get out of here on this from both of you quickly. If this conflict with Iran, the Strait of Hormuz, if oil is not flowing the way that it normally does over the next six months, let's say through the end of this year. Tyler, I'll start with you. Do you think we can keep oil prices the way that they are? Or are we going to, are these what I call band-aids just going to, there's only so much strategic petroleum reserve that you can pull out of it. And eventually we're undersupplied overall and that's going to impact prices. Or is that not the right way to think about it?

5:47Tyler Crowe:Six months, I think we might be pushing. I mean, we're, I think, four months into it now. And it is strained. Let's not take away from the fact that like SPR releases have been patching things together. We can't do this, you know, forever forever. And also take into mind into account, too, that, you know, Russia has also significantly lost a lot of refining and export capacity recently because of its conflict with Ukraine. So there are some other things that are kind of knocking on here. If we were to, you know, go for another six months, that would be a little bit harder to do. Now, on that Band-Aid sort of situation, you're also seeing, for example, the UAE is starting to build pipelines so they can actually circumvent the Strait of Hormuz.

6:29Tyler Crowe:I can't really build one and a port in six months, but there does seem to be some momentum towards ways to circumvent the existing bottlenecks. and maybe over the six months it wouldn't happen. But I think over the next couple of years, we're going to probably end up building a slightly more resilient system that can absorb these shocks even better than before.

6:51Travis Hoium:When we come back, we're going to get to a new stable coin in the market. You're listening to Motley Fool Hidden Gems Investing.

7:01Travis Hoium:Welcome back to Motley Fool Hidden Gems Investing. Move over Tether and USD. A new stable coin is here. OpenUSD is out. It has the support of a massive number of institutions. Lou, this is why I wanted to bring this to you. I know that you've been questioning the future of stablecoins, but Visa, Stripe, MasterCard, BlackRock, BYN, Google, IBM, Solana, all of these companies. there's a list of about 100 companies that are going to be adopting this stablecoin. Is this finally this disruption to payments that we've been promised from the blockchain over the past five or 10 years?

7:42Lou Whiteman:I think it's disruptive for every other stablecoin. I don't know if it's disruptive for anyone else. Inevitably, most of the money is going to gravitate towards one stablecoin or a couple of stablecoins if it goes anywhere at all. If this is where the cool kids are playing, this is where everyone will go. So if you were trying to compete against this stablecoin, all of these partners definitely puts you at a disadvantage. As far as the consumer goes, I don't see this as anything at all to worry about. Behind the scenes, on the enterprise side of it, there is the potential here to make existing payment flows more efficient.

8:19Lou Whiteman:I know everyone always talks about how that was going to tear down Visa and MasterCard. It's going to destroy these plump margins they get. I think more likely is they adopt these tools, they grow more efficient, they lower their fees, but keep margins intact. Never underestimate the power of inertia in finance, especially among these big players. The house usually wins. I think this might end up with lower fees everywhere, but I think Visa and MasterCard will be just fine.

8:45Tyler Crowe:Tyler, what do you think? Is it really disruption if every major existing player in a system is implementing it?

8:54Travis Hoium:Well, let me make the case for this because I've been watching this for a while. And one of the things, if you've ever run a business and you paid the 3 % credit card fees, that's a massive fee. Like a restaurant, for example, the credit card fees are about the same as the profitability of a really good restaurant. So you're basically, you could double your profits if you just didn't have to pay those fees. The potential fee reduction is real. And the example that I always point to is Stripe accepts USDC stable coins on their platform. It's just a digital transfer, just like using a credit card.

9:34Travis Hoium:But they charge about 1.5 % as opposed to 2.9 % for using credit cards. So that, if it is implemented, could potentially be disruptive to someone in that ecosystem. Now, is that Visa and MasterCard? Is it the banks who are actually taking a big chunk of that? But I don't know that we necessarily know the final answer to that, but I know that merchants would love to pay a 1.5 % fee instead of a 2.9 % fee. So, you know, that's potentially the case for this sort of consortium at least moving in that direction, a potentially more efficient way of moving money around. And that will at least change who's got their fingers in the pie.

10:15Tyler Crowe:that's fair but when i think i guess what i'm thinking of disruption i'm thinking of you know tackling the the institutions that have built up the true you know whatever uh problem this happens to be solving and when i look at this it's like well you know stable coins payment processing this was supposed to you know up end like the visa and master cards and all that when if they're all implementing it it's i don't know it almost feels like where the basal rules coming out of the financial crisis a disruption to the banks or it was a kind of like standard protocol that everyone adopted and you know for the for better or worse change the way they do it yeah and this really does feel a little bit more like entrenchment of the existing systems because now you know who does uh for example in this you know crypto world who are in you know think of circle or think of any or tether with any of the other stable coins.

11:10Tyler Crowe:Like, what is their case? It seems like they're just disrupting the disruptors, I guess, if you will, because it's, you know, taking something that was sort of starting to gain traction, but then immediate was like every major entrenched institution is basically playing a better version of your own game.

11:27Lou Whiteman:So I'm team Tyler here. Maybe with semantics, we're talking about words, but disruption means incumbents fall. And I think incumbents get stronger here. Maybe there is a benefit for retail and maybe, you know, that that's if anything, if Visa and MasterCard can find a technology that allows them to keep their margins, but shut up all these critics that are always complaining about their high fees. that's a win for them. I think the incumbents win here. The technology may change. There may be a little benefit for the other restaurants, retailers, but Visa and MasterCard, the idea that you should sell these stocks because technology that they can adopt too is coming.

12:10Lou Whiteman:That's to me, I don't get that.

12:12Travis Hoium:The interesting thing to watch will be how does this change under the hood and that fee structure and Visa and MasterCard actually don't take a huge percentage of that 2.9 % that I talked about. They take a pretty small cut. The bigger cut goes to banks. And ultimately, in a lot of cases, comes back to consumers with the cash back that you may have with your credit card. So is that something that consumers would be willing to adopt? Hey, instead of having that surcharge on your restaurant of 3 % or 4 % on your bill, you'll have a little bit less in money back. I don't know. That is changing consumer behavior that I don't know that we're necessarily ready for yet, but definitely something to watch given all of the huge names that are involved here in adopting this new stable coin.

12:59Travis Hoium:When we come back, we're gonna get to Nike's earnings and why the stock is maybe up today. You're listening to Motley Fool, Hit Gems Investing.

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14:33Travis Hoium:Welcome back to Motley Fool Hidden Gems Investing. Nike's earnings are out. They, on the surface, don't really look all that good on a reported basis. Revenue was flat on a currency neutral basis. It was actually down direct to consumer sales, down 7%. But Lou, the stock is up about 2 % today. So what should we be taking from this earnings report?

14:54Lou Whiteman:And mind you, still down 35 % for the year, which I think is a bigger point.

14:58Travis Hoium:It's not been a good run for Nike.

15:00Lou Whiteman:But look, I got to be honest with you. I don't think these were great results if you are a Nike shareholder. I don't think there's much to celebrate here. They did beat expectations. So you have that headline there. But the bad news is expectations were rock bottom. Nobody was expecting much coming in here. And even the good news was bad news. If you look under the hood, they earned 72 cents per share. But 52 cents of that was related to tariff recovery. Same story with gross margins. Improved by 890 basis points. That includes 900 basis points of margin benefits. Margins would have been down without tariffs.

15:37Lou Whiteman:Sales were down across the board, down in China. Look, this is not a company where individual quarters matter. What we need to see is that there is a turnaround in place. And I don't know how you can read this and say anything other than if there is a turnaround going on, we are very, very, very early here.

15:56Tyler Crowe:Something happened within the most couple most recent weeks that actually wasn't anything related to Nike, but I think it's emblematic to some of the troubles or challenges that we've seen with Nike. Steph Curry signed a 10 year shoe deal with Li Ning, which is a Chinese footwear company. he was you know a free agent after he left Under Armour and you know look I get it that like maybe Steph Curry isn't like the newest hot thing in the NBA right now but his this past year in 2026 he was still the top selling jersey in all the NBA so whatever brand he has it still carries a lot of weight and the fact that Nike with this you know Elliot Hills win now effort and being obsessed with sport and athletes I find it kind of strange that it couldn't land Curry I feel that like that's like emblematic of the challenges that it's been having, trying to, you know, meet the customer where it wants to be and all that stuff.

16:49Tyler Crowe:And look, I've done my best to help Nike. I have bought so many Paris Center Man kits lately. I, you know, I think they should actually be highlighting me in the conference call.

17:00Travis Hoium:That would be a really nice call out for you. The thing that I wanted to just ask quickly as we round things up here is, is this a company that even can turn it around at this point? Tyler, I want you to go first.

17:16Tyler Crowe:Yes and no. And that's like the weird disparity in their business. Because if you look like at the North America numbers, it's actually doing surprisingly well. Like wholesale numbers were up double digits year over year for North America. The challenge is China. And this is not just been like a one time thing. They saw a 17 percent decline in retail sales quarter over quarter. And I saw this on a substack from the Science of Hitting, who's been tracking Nike for a long time. Nike's sales in China are down 30 % over the past five years. It's gone from what was a structural tailwind for them for many years into a headwind.

17:54Tyler Crowe:And I struggle to see when that decline reverses course.