* China's rail freight volumes log steepest ever decline in
* Middle East tensions rise as Kuwait recalls Iran
* Islamic State targets Es Sider oil port in Libya
(Adds Reuters OPEC production survey, updates prices)
By Karolin Schaps
LONDON, Jan 5 Oil prices fell on Tuesday on
concerns about the pace of economic growth in China and a
stronger U.S. dollar, handing back some of the gains triggered
by an escalation of tensions in the Middle East.
Global benchmark Brent crude prices were down 61
cents at $36.61 a barrel at 1503 GMT. U.S. West Texas
Intermediate (WTI) crude slipped 40 cents to $36.36.
"It is the Chinese stock market sell-off and the strong
dollar that are pressuring oil," said Tamas Varga, oil analyst
at London brokerage PVM Oil Associates.
Chinese stock markets fell again on Tuesday after a 7
percent dive on Monday, rattling markets worldwide and prompting
action from the central bank and stock market regulator.
Concerns about the economy in China, the world's
second-largest oil consumer, were worsened by news that national
rail freight volumes logged their biggest ever annual decline in
"Last year we talked about supply and demand even surprised
on the upside. But with this news flow from China, demand fears
have come back," said Frank Klumpp, oil analyst at
Stuttgart-based Landesbank Baden-Wuerttemberg.
The U.S. dollar hit a one-month high against a basket
of currencies, weighing on oil prices as it made holding
dollar-denominated commodities more expensive.
The oil market largely shrugged off rising political
tensions in the Middle East. On Tuesday Kuwait recalled its
ambassador to Iran after attacks on Saudi missions by Iranian
protesters, state news agency KUNA reported.
Analysts said that as long as the conflict did not affect
oil production in the region it would not have a consequence for
ANZ bank said the tensions between Saudi Arabia and Iran
will "reduce the likelihood of any collaboration between the two
oil majors regarding oil output as Iran re-enters the
international market once sanctions are lifted".
A Reuters survey found that OPEC oil output fell in
December, led by lower supply from Iraq after a record-breaking
November. Exports from Iraq's southern terminals, its main
outlets, fell in December but are likely to reach new highs
again in the coming months.
In Libya, Islamic State militants resumed attacks on oil
infrastructure, hitting a storage tank in the port of Es Sider.
This followed clashes on Monday, during which a storage tank
holding about 400,000 barrels of crude exploded.
The ports are not operating, but analysts said that Islamic
State's growing presence in oil-rich Libya means the country is
unlikely to regain pre-crisis production levels any time soon.
In Algeria, an explosion and fire at the Skikda oil refinery
injured 18 people, but production was unaffected because the
incident occurred in a unit used to fill butane bottles.
Data from U.S. industry group American Petroleum Institute,
expected at 2130 GMT, will give an indication of U.S. crude
Genscape data published on Monday showed crude inventories
at Cushing, Oklahoma, had reached a record high in the week to
Jan. 1, though a Reuters poll indicated that stocks had fallen
by 500,000 barrels.
(Additional reporting by Henning Gloystein in Singapore and
Osamu Tsukimori in Tokyo Editing by David Evans and David