Oil prices fell below US$60 a barrel for the second time in less than a week as fears of a widespread recession overwhelmed earlier optimism over China's $586 billion (Dh2.2 trillion) economic stimulus package. Yesterday's five per cent drop in crude prices to $59.32 a barrel on the New York Mercantile Exchange (Nymex) occurred as the US dollar strengthened and stock markets dropped, drawing investor attention away from the Chinese aid plan. Oil may also have been driven lower by continuing speculation that the International Energy Agency (IEA) would again cut its forecast for 2009 oil demand, as weakening economic growth damps fuel consumption. The Paris-based IEA, which advises 28 industrialised oil consuming countries, has already lowered its global oil demand projections in each of its two previous monthly reports. It is due to release its 2008 World Energy Outlook, an annual assessment of oil markets, later today. Amid the market turmoil, Fitch Ratings issued a report predicting that most Gulf states would be able to maintain their recent fiscal spending levels with current oil prices. Nonetheless, it warned that "a phase" of fiscal surpluses for Gulf states may be coming to an end. "Gulf Co-operation Council governments have saved much of the oil price windfall in recent years, but they have also increased spending, pushing up break-even oil prices," Fitch said. During the six-year rally in oil prices from 2002 to the middle of this year, Gulf oil exporters used increasing revenues from crude sales to embark on major infrastructure and economic development programmes, most of which are still in early stages of development. Saudi Arabia's fiscal surplus would fall to zero at an oil price of $50 a barrel, Kuwait would break even at $42 and Abu Dhabi at $31, the debt rating agency said. "Abu Dhabi, Saudi Arabia and Kuwait will avoid major cuts to spending plans in 200, and will be content to run much lower surpluses," Fitch said. However Bahrain, needing an oil price of $74 to break even, would have to cut spending as already anticipated in the kingdom's draft budget, it added. Nymex crude prices have plunged 59 per cent since peaking at $147 a barrel in July, and are down 36 per cent from a year ago. Oil has slumped 10 per cent in the past week alone, as equities retreated, US fuel stockpiles rose and the nation's unemployment rate climbed to a 14-year high. Opec officials said this week the group may call a second emergency meeting ahead of its regularly scheduled Dec 17 meeting in Algeria, in response to the continued steep slide in oil prices. At its last emergency meeting on Oct 24, the group pledged to cut output by 1.5 million barrels per day. Since then, major Opec oil exporters including Saudi Arabia, Iran and the UAE have confirmed compliance with the reduced production quotas. tcarlisle@thenational.ae Chinese inflation slows B12