Oil Falls on China Data, Stronger Dollar

China's rail freight volumes log steepest ever decline in 2015; Middle East tensions rise as Kuwait recalls Iran ambassador.

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 22 cents at $37 a barrel at 1057 GMT. U.S. West Texas Intermediate (WTI) crude slipped 4 cents to $36.72 a barrel.

"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 2015.

"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 rose against a basket of other 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 also recalled its ambassador to Iran following attacks on Saudi missions by Iranian protesters, state news agency KUNA reported.

Analysts said that as long as the conflict did not impact oil production in the region it would not have a consequence for oil prices.

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".

In Libya, Islamic State militants resumed attacks on oil infrastructure, hitting an oil storage tank in the port of Es Sider.

This followed clashes on Monday during which an oil storage tank holding around 400,000 barrels of crude exploded.

The ports are not currently operating, but analysts said Islamic State's growing presence in oil-rich Libya means the country will unlikely regain pre-crisis production levels any time soon.

Data from U.S. industry group American Petroleum Institute expected at 4:30 p.m. ET (2130 GMT) will give an indication of U.S. crude inventory levels.

Genscape data published on Monday said crude inventories at Cushing, Oklahoma, had reached an all-time high in the week ending Jan. 1.

A Reuters poll indicated stocks had fallen 500,000 barrels in the week.

By Karolin Schaps