LONDON - Brent oil prices hit an eight-month high on Friday, driven by simmering geopolitical tensions over key crude producer Iran and optimism the Greek debt crisis can be resolved, traders said.

Brent North Sea crude for April delivery hit $120.70 per barrel, its highest point since June 14. It later pulled back to $119.32, down 79 cents from Thursday's closing level.

New York's main contract, West Texas Intermediate (WTI) light sweet crude for delivery in March, rose 52 cents to $102.83.

"Greater risk appetite in the light of hopes of financial assistance for Greece, coupled with the Iran crisis, have caused Brent to climb to an eight-month high of over $120," said Commerzbank analyst Carsten Fritsch.

"Admittedly, Iran has denied reports of an immediate ban on oil shipments to the EU, yet consumers in Europe already appear to be preparing themselves for just such an eventuality," Fritsch said.

"According to industry sources, the leading European oil companies have slashed their March oil imports from Iran by more than 300,000 barrels per day. This is prompting additional demand for alternative oil types and is thus causing prices to rise."

The market gained ground on continued tension between Western powers and Iran, as well as positive economic data from the United States, analysts said.

"Ongoing Iranian tensions and the threat of disruption to oil supplies continue to be the main driver in the oil price," said VTB Capital economist Neil MacKinnon.

"In addition, better US economic data and improving risk appetite in the equities market also provides support."

Israeli Prime Minister Benjamin Netanyahu accused Iran on Thursday of being the most irresponsible country in the world and said sanctions against Tehran over its nuclear drive "haven't worked."

His comments come amid growing speculation that Israel was getting closer to mounting a pre-emptive strike on Iran's atomic sites.

Tehran has been slapped with four sets of UN sanctions, in addition to a raft of unilateral US and EU sanctions, designed to halt a programme that the West fears masks a drive for atomic weapons.

The Islamic republic denies this charge, saying its nuclear plan is for peaceful purposes.

Oil prices were also supported by news that US unemployment benefit claims fell to a four-year low last week, indicating a labour market recovery in the world's biggest economy and largest oil consumer.

The US Department of Labor on Thursday said applications for unemployment insurance payments dropped by 13,000 to 348,000 last week.

Meanwhile, traders are also closely watching the situation in the North Sea, where output is set to fall for a third month in March due to maintenance work.

WASHINGTON- New claims for US unemployment benefits fell last week to their lowest level since March 2008, official data showed Thursday in a fresh sign of improvement in the troubled job market.

Initial jobless claims fell to 348,000 in the week ending February 11, down 3.6 percent from the prior week, the Labor Department reported.

The decline in claims was much better than the 365,000 new filings analysts had expected.

New jobless claims have now returned to the level of March 2008, when Wall Street investment bank Bear Stearns declared bankruptcy amid recession.

The Labor Department's four-week moving average of initial jobless claims, which helps to smooth out volatility in the weekly numbers, fell to 365,250.

"Claims have been falling since the middle of last year, and there is no reason to think the declining trend is about to level out," said Ian Shepherdson at High Frequency Economics

"Rising corporate and consumer sentiment and the clear and sustained improvement in bank credit conditions for smaller firms is making it easier for businesses to hold onto people whom they might previously have had to let go."

In January, the unemployment rate fell for the fifth straight month, to 8.3 percent, the lowest level since February 2009, thanks to a surge in job creation.

The economy added 243,000 net new jobs in broad-based gains and wages rose 0.2 percent, prompting analysts to revise their forecasts for first-quarter economic growth.

US homes

US home building picked up pace in January from a month before, confirming an upsurge in the housing construction sector that began in the fourth quarter of last year, the Commerce Department reported Thursday.

Construction was initiated on new homes at an annual pace of 699,000 units, up from 689,000 in December and slightly above the average for the last three months.

The average for the previous three months was 615,000 units.

The Commerce Department said that the year-on-year rise in January was 9.9 percent.

Underpinning the trend is solid growth in the number of single-family housing starts, which have picked up steadily as well.

"The new home sales numbers have not yet responded but builders seem confident that if they build, buyers will come," said Ian Shepherdson at High Frequency Economics.

Tax cut

 US congressional leaders agreed Thursday on a $100 billion deal to extend a middle-class tax cut and unemployment benefits for millions of Americans in a rarely seen bipartisan deal in Washington.

The agreement was announced just after midnight on Thursday by Senate Finance Chairman Max Baucus, a Democrat, and House Ways and Means Chairman Dave Camp, a Republican, and could be voted on as early as Friday.

No details were given but the plan is expected to extend a cut in the Social Security tax rate -- from 6.2 to 4.2 percent -- for another 10 months, and extend unemployment benefits.

"This agreement will keep us moving forward, just as our economy is gaining steam," said Democratic Senator Harry Reid, the Senate Majority leader, in a statement.

The compromise will also prevent a sharp decrease in payments to physicians serving patients covered by the state-run Medicare health program for elderly Americans.

In a key concession, Republicans reportedly did not require the cost of the tax cuts to be matched by spending cuts elsewhere in the budget.

The deal is a victory for President Barack Obama and points to a new spirit of compromise among bitterly divided Republican and Democratic lawmakers, conscious of record low approval ratings in the heat of an election year.

"Everything should not be a fight, and I am glad that most of my Republican colleagues put the interests of the middle class ahead of politics to forge this agreement," Reid said.

"Americans expect us to put our differences aside and find common ground. In the months ahead, I hope this shift to the middle becomes the norm, rather than the exception," he added.

The key compromise involved a deal whereby new federal employees will pay more into their pension plans while the contributions of existing employees will remain the same, the Washington Post reported.

Earlier this week, House Republican leaders dropped their opposition to extending the federal payroll tax holiday, averting a fight with Obama on an issue that threatened to hurt them with voters.

House Speaker John Boehner and his top lieutenants announced Monday that they would no longer insist that the $100 billion cost of the extension be offset with spending cuts elsewhere.

The payroll taxes affect salaried workers, so reducing the amounts withheld from paychecks was a key element of the Obama administration's efforts to bolster the US economic recovery.

A two-month reduction in the payroll tax was agreed in December as part of a tax compromise, but only after a rebellion by some House Republicans caused a bitter partisan standoff.

In the wake of the fight, polls showed public approval of Congress falling to a record low.

Finance Secretary Cesar Purisima on Wednesday said mining taxation will be revised to follow the 50-50 revenue sharing between the government and the investor in the mold of the service contract governing the Malampaya natural gas project.

“That’s the type of contract that we would like to see in mining,” Purisima told reporters in a news briefing.

Purisima said mining companies were taking advantage of loopholes in the system to avoid payment of the government’s fair share in revenues.

He said the changes in mining taxation would be contained in the executive order to be issued by President Benigno Aquino III soon, which would make sure that the government get its fair share in mining revenues.

“Mining laws and incentives have been taken advantage of,” he said, referring to the Philippine Mining Act of 1995, which governs projects covered by Financial or Technical Assistance Agreement and Mineral Production Sharing Agreement.

Purisima said that while the FTAA allows a 50-50 rule in revenue sharing, mining companies have tried to avoid this by applying for MPSA instead. MPSA imposes only a 2-percent excise tax on minerals.

“We want to see more FTAAs, rather than MPSAs,” he said.

Purisima clarified that the proposed changes would apply only to future projects and would not cover existing contracts.

He also said President Aquino had not seen the draft of the executive order, which is circulating among mining companies.

The Joint Foreign Chambers earlier expressed concern over the proposed mining reforms, based on a draft presidential executive order which proposes a review of all existing incentives and mining contracts.

The draft order reportedly “proposes to review all existing contracts and renegotiate or impose an increased government tax or royalty share, and potentially close out granted contracts completely.”

Purisima denied the claims, saying the proposed changes would cover only future applications.

Industry group Chamber of Mines said large-scale mining companies operating in mineral reservations already pay the government about 60 percent of the company’s gross revenues, regardless of whether it posts a profit or not.

Mark Williams, general manager of Xstrata Plc and Indophil Resources NL’s Tampakan venture in South Cotabato, said the Philippines must honor existing contracts with mining companies.

The local mining law is “a good piece of legislation and it should be maintained and consistently used,” Williams said. “Investors are looking for consistent mining policy.”

The Philippines is considering tightening rules and cutting tax breaks, according to a draft executive order obtained by Bloomberg News.

“The Tampakan project is on the international investor radar screen. It is a barometer to signal and give information to other international investors. With a successful approval phase, we believe this will generate investor confidence in the Philippines, in particular in Southern Mindanao, not only in the mining industry but other industries as well,” said Williams at the sidelines of a mining forum. ManilaStandardToday

Filipinos working overseas sent home a record $20.1 billion in 2011, shielding the Philippine economy from sluggish government spending and falling exports.

The Bangko Sentral said Wednesday the 2011 remittance figure rose 7.2 percent from $18.763 billion in 2010, although the pace was slower than the previous year’s 8.2-percent gain.

“The growth in cumulative remittances through December slightly surpassed the Bangko Sentral projection of a 7-percent expansion in 2011,” said Bangko Sentral deputy governor Juan de Zuniga Jr.

The growth in remittances, which supported household spending, made up for the lackluster government spending and a 6.9-percent contraction in merchandise exports.

“Cash transfers from overseas Filipinos which were estimated to be around 9 percent of GDP continued to be a major contributor in stimulating domestic demand,” said Zuniga.

The gross domestic product grew 3.7 percent in 2011, supported by a

6.1-percent increase in household spending, and despite the 0.7-percent contraction in government spending.

Remittances also kept the balance of payments in surplus and pushed the gross international reserves to $77 billion as of January.

Top sources of remittances last year remained the United States, Canada, Saudi Arabia, the United Kingdom, Japan, the United Arab Emirates, Singapore, Italy, Germany and Norway.

Remittances in December surged 6.2 percent to $1.8 billion, the highest monthly level on record. The growth in December, however, slowed from 10.6 percent in November. 

MANILA, Philippines – It’s said a crisis is too good an opportunity to go to waste. So is a sharp slowdown – like what happened to the Philippines last year when economic growth slumped to just 3.7% from the previous year’s 7.6%, the highest in 34 years. 

There are 2 big lessons from the drastic deceleration in the Philippines, which likely posted the least growth in southeast Asia in 2011 after flood-stricken Thailand, according to the Asian Development Bank.

The 1st and more obvious one is the need for command and control over the government’s anti-corruption drive to prevent prolonged reviews that stalled many key infrastructure projects.

Government infrastructure spending dropped sharply under Aquino, cutting potential economic growth by 0.7 percentage points in 2011, according to the National Economic and Development Authority itself. Public construction fell by an average 30% in each of the first 5 quarters since the president assumed office on June 30, 2010.

However, we need to be clear that the problem is not the sharp decrease in spending itself. A spending slowdown is fine especially if it comes after a period of excessive election-related outlays, some of which went to unsound and possibly graft-ridden projects. Some of the expenditure decline could very well represent savings because of better project selection and design. 

The problem is the lack of effective control over the review and reform process, which seemed to have gone out of hand. As NEDA chief Cayetano Paderanga Jr himself acknowledged: “The review was done by the different agencies. The degree (of the cuts) was probably – you know when you do these things separately – in a way not anticipated. Now that we have seen this, there will be adjustments.” 

He made the statement back in May 2011, when first quarter economic output numbers showed that government capital outlays continued to slide. Yet, government underspending continued well after that. Non-interest government expenditures in the first nine month of 2011 fell 17% below the administration’s own budget for the same period. Public construction finally rose in the fourth quarter, surging by 49.4% from the previous year, after the government put in place a disbursement acceleration plan to counter the impact of the global economic slowdown.

The economic planning chief assures that government spending will continue to pick up speed this year. “The hard work of reforming government processes and plugging expenditure leaks has been done,” he said on January 30. The NEDA last year has already approved about 6 projects that will be ready for implementation this year.

The 2nd lesson – diversifying Philippine exports which are dominated by low-end semiconductor parts and components – is not as obvious as the 1st. It may also prove harder to put in practice; every administration has been trying to expand the country’s export base as well as markets but with limited success.

But more than the other factors, weak exports contributed the most to the country’s sluggish GDP growth last year. NEDA estimates that falling overseas sales cut the Philippines’ potential economic growth by 2.2 percentage points. 

In turn, the big drop in exports, which fell by around 13% in the 2nd half of the year as the global economy began to slow, can be traced largely to the Philippines’ narrow export base made up largely of semiconductor components. “Philippine exports is very concentrated in one sector and that was the sector most hit by global slowdown,” said Paderanga.

Indeed, manufactured products account for 87.3% of the country’s exports, far more than any other country in south-east Asia.

And information communication technology (ICT) parts and components, which go into computers, laptops, smartphones and other gadgets, made up 75% of Philippine manufactured exports, according to the ADB. 

Too, almost half of Philippine exports go to just to the United States and Europe, the regions causing the global slowdown. In a downturn, the rich world’s consumers and companies typically cut back on spending for new computers, laptops and other electronic gadgets.

Other big south-east Asian countries such as Indonesia and Malaysia were also affected by the global slowdown but still managed to grow at much faster pace than the Philippines. The ADB  estimates that Indonesia expanded by 6.6% last year and Malaysia by 4.8%. That may have something to do with their more diverse exports. Manufactured goods account for just 42.1% of Indonesian exports and 69.7% of Malaysian exports.

Aquino’s economic managers are acutely aware of the risks of too much export concentration, and want to boost exports to China, which is in the midst of rebalancing its economy towards domestic consumption. The Philippines is already China’s No.1 source of bananas and No.2 for coconut oil. Trade officials are exploring the prospects of selling high-quality and branded furniture and woodcraft, designer clothes and accessories, and health products such herbal supplements to China’s rapidly growing middle class. 

No doubt, the Philippines urgently needs to rebalance its exports. It can’t be all electronics parts and components. There should be more of minerals and processed foodstuffs, which can be produced competitively in the country given the right conditions. At this time, it wouldn’t hurt to go easy on the semiconductor chips, and instead export more banana chips.

Aquino’s economic managers have begun to streamline and plug leaks in the government expenditure system. It would not be as easy to diversify the country’s narrow export base. All the more reason, then, to begin as soon as possible. - Rappler.com