I recived a FHZ over christmas, and I took off the string, and there was some red stuff on it where it wrapped around the bearing, and it smelled like oil, and the entire yoyo smells like oil. Is this normal? and will it affect anything?
Ive noticed this with some Duncan stock strings. It will not affect the yoyo at all.
btw, welcome to the forums!
The red loop on Duncan strings is to let the factory worker quickly see which end to put on the yoyo.
Yoyos don’t smell so great. I try not to smell them for this reason 
Also, after using it, my hands start to get that oil/ gas smell. Problem, or no?
No problem for you or the yo.
That red loop also helps the loop last longer.