Peace talks (Weekly Summary 15/02/2025)

There have been quite a few interesting events to analyze this week, and below I list the most noteworthy news. Let’s get started:

• Trump doubles down on tariffs. The U.S. president has announced a 25% tariff on all steel and aluminum imports, marking a new escalation in his trade policy. This measure adds to the existing tariffs on metals and reinforces his protectionist stance.

  The impact will be felt primarily by Canada, Brazil, and Mexico, the top steel suppliers to the U.S., as well as countries like South Korea and Vietnam. In the case of aluminum, the U.S. is heavily dependent on Canada: Quebec alone exports 2.9 million tons per year, covering 60% of American demand. It is no surprise that Quebec’s premier has called the measure a direct threat to trade and demanded an immediate renegotiation of the trade agreement with the U.S., without waiting for the scheduled review in 2026.

  Trump’s new plan also raises questions about tariff agreements signed under the Biden administration with the UK, the EU, and Japan, which had secured some relief through quotas and exemptions. It remains unclear whether these agreements will be upheld or if Trump will scrap them entirely. Meanwhile, the U.S. steel industry has welcomed the move: the American Iron and Steel Institute has endorsed the decision, arguing that it will help restore the industry’s competitiveness against market distortions caused by China.

  At the same time, Trump is ramping up pressure on Canada and Mexico over immigration. He has reiterated his threat to impose a 25% tariff on all imports from these countries if they do not strengthen border controls. Although he has granted a reprieve until March 1 after receiving some concessions—such as the deployment of 10,000 National Guard troops in Mexico and new measures against fentanyl trafficking in Canada—he considers these actions insufficient. The strategy is clear: toughen trade policy to gain leverage in negotiations with U.S. partners and solidify his image as a defender of American industry. But with markets already sensitive to economic uncertainty and the risk of retaliation from trade partners, the real question is how far he can push this trade war without triggering a boomerang effect.

• Inflation in the U.S. continues to complicate the economic outlook and pushes back the possibility of interest rate cuts. The Consumer Price Index (CPI) rose 0.5% in January, marking the largest increase in nearly a year and a half, surpassing market expectations. This surge was driven by increases in housing, auto insurance, and prescription drugs, reinforcing the Federal Reserve’s stance on maintaining restrictive monetary policy for a longer period. Car purchases have accelerated since Trump’s election, with consumer confidence trending upward.

  

   

  Additionally, the impact of Trump’s trade policies is beginning to take effect, as companies anticipate price hikes due to potential new tariffs on imported goods. Notably, the president temporarily suspended a 25% tariff on goods from Canada and Mexico but imposed an additional 10% tariff on Chinese products, which is likely to have an inflationary effect in the coming months.

  The housing component, which accounts for nearly a third of the CPI, rose 0.4%, while food prices increased by another 0.4%, with egg prices jumping 15.2% due to an avian flu outbreak. On an annual basis, inflation reached 3.0%, the highest increase since June 2024, while core inflation, which excludes food and energy, rose 3.3%, driven by increases in medical services and auto insurance.

  

   

  Market reactions were immediate: Wall Street stocks fell, Treasury yields rose, and the dollar weakened. Federal Reserve Chairman Jerome Powell made it clear that the 2% inflation target has not yet been met, reducing expectations for a rate cut in the short term. In fact, markets have started to price in the possibility that the Fed will keep rates high for longer than expected, with only one fully priced-in rate cut for the year.

  The political landscape is also becoming more complex for the Trump administration. While he was elected on the promise of reducing inflation, his trade and fiscal policies could further fuel price pressures. Immigration restrictions, for example, could lead to labor shortages and drive up wage costs, while proposed tax cuts might overheat the economy, making inflation control even more difficult. In this context, the Fed faces a tough dilemma: any premature easing could reignite inflationary pressures, while maintaining a restrictive policy for too long could hamper economic growth.

• The war in Ukraine is nearing its end. Donald Trump has taken his first major diplomatic step regarding the conflict after holding phone conversations with Vladimir Putin and Volodymyr Zelensky. In a message on his social media platform, Trump stated that he and the Russian president agreed to start negotiations immediately and that, after speaking with Zelensky, both leaders expressed their desire for peace. According to official sources, the conversation with the Ukrainian leader lasted about an hour, while the one with Putin extended for nearly 90 minutes. The Kremlin confirmed that Trump and Putin have agreed to meet, with Moscow as one of the options on the table, though speculation also points to a potential meeting in a third country like Saudi Arabia or the United Arab Emirates.

  Since the start of his campaign, Trump has pledged to end the conflict quickly, though he has not detailed how. His administration has begun shifting the U.S. stance, with Defense Secretary Pete Hegseth stating in Brussels that it is “unrealistic” to expect Ukraine to regain all territories occupied by Russia since 2014 and that insisting on this will only prolong the war. Hegseth also ruled out U.S. troop deployment in Ukraine but acknowledged that any peace agreement must include security guarantees to prevent the conflict from reigniting.

  Meanwhile, Zelensky has intensified efforts to maintain Washington’s support, proposing an agreement in which the U.S. would invest in Ukraine’s strategic mineral resources. The rapprochement between Moscow and Washington has also included other gestures, such as a recent prisoner exchange in which Russia released American professor Marc Fogel in exchange for a Russian citizen convicted of cybercrime in the U.S. Such moves signal that both sides are seeking to ease tensions ahead of future negotiations on Ukraine, where formal peace talks have not taken place since the early months of the war.

  With Russia currently occupying about 20% of Ukrainian territory, both sides remain at opposite ends: Moscow demands further territorial concessions and Ukraine’s permanent neutrality, while Kyiv insists on the complete withdrawal of Russian troops and the need for security guarantees to deter future attacks. It is likely that a peace agreement will take shape in the coming months, pressured by both American and European interests, as Europe cannot sustain competitiveness without cheap Russian energy.

• Inflation in Argentina continues to slow down, closing January at 2.2% (monthly, that is), the lowest figure since July 2020. This represents an improvement from December’s 2.7% and brings the annual variation to 84.5%—still high but showing a downward trend. This will be the last figure under the official exchange rate adjustment scheme of 2% per month, as the government has decided to reduce this pace to 1% per month in an effort to further accelerate disinflation.

  As a result, February’s inflation figure is expected to fall below 2%, marking a potential turning point for the economy. However, the first days of the month have seen an unexpected rebound in food prices, particularly meat, which carries significant weight in the basic consumption basket.

  

   

  The country’s macroeconomic improvement is evident, and public sentiment reflects this progress. With elections later this year, this will be a key test for Milei to see if he can accelerate and deepen his policies with greater political control. Here’s a link to an article where we explain what lies ahead for the country this year.

• Oil had a rollercoaster week, only to end up nearly where it started. The market opened higher on Monday and Tuesday, driven by the impact of sanctions on Russia, but lost ground on Wednesday and Thursday following the announcement of talks between Trump and Putin regarding a potential negotiated resolution to the conflict in Ukraine. Price spreads (timespreads) weakened across the board, and in the case of WTI—already hit by tariff concerns last week—came close to contango. Refined products, on the other hand, showed more resilience than crude, with gasoline and diesel crack spreads in the U.S. exceeding seasonal averages, though still below last year’s levels. In terms of positioning, speculators were once again net sellers of crude contracts.

  

   

  Beyond the weekly fluctuations, the major themes at play remain the Trump-Putin negotiations to end the war in Ukraine, which could have a profound impact on the oil market, and the fundamentals of physical supply and demand, where the U.S. plays a key role. The market continues to tighten, and the data confirms what we’ve been saying for some time: U.S. oil supply is crumbling while demand remains firm. Over the past four weeks, implied consumption of petroleum products in the U.S. averaged 20.3M bpd, up 2.8% year-on-year, with increases across all categories. This reinforces the idea that, despite the cooling-down narrative, the market continues to absorb crude without issue.

  On the supply side, there’s nowhere left to hide. 2024 ended with the weakest shale production growth since the sector’s revolution in 2016. The final blow came in January, with a ~500k b/d drop due to weather effects, but the key issue is not that temporary setback, but the trend: production didn’t experience the usual Q4 push that typically offsets natural declines and capex lag. Without that support, the first half of 2025 is shaping up to be weak, and by the time the second half of the year arrives, we’ll already be facing a structurally lower production level.

  This dismantles the oversupply narrative that some continue to push. With no shale growth, no significant new production sources, and demand still at record highs, the market balance is shifting. Consensus remains blind, but the reality of oil always prevails.