NEW YORK, Jan 4 (Reuters) - Oil prices fell on Monday in volatile trade, with gains from an early rally on Middle East tensions vanishing as sliding global stock markets and worries about China extended crude's slump into the first trading day of 2016.
Brent jumped 4 percent early on worries about Middle East tensions. But the benchmark erased its gains and settled a few cents lower as fears about the global economy outweighed concern about the dispute between Saudi Arabia and Iran, which looked unlikely to disrupt oil supplies immediately.
U.S. crude's West Texas Intermediate (WTI) futures finished down almost 1 percent, pressured by worries that record inventories could swell further at the Cushing, Oklahoma delivery hub. Last week's floods in the U.S. Midwest prevented oil from getting to some refineries.
With Brent and WTI still trading some two-thirds below their mid-2014 highs, analysts said focus was back to the glut in global crude supplies.
"Given what is likely to be some high-pitched volatility within global equities this month, we look for a closer connection between oil and the stock market for a few weeks," said Jim Ritterbusch, of Chicago-based oil markets advisory Ritterbusch & Associates.
Brent settled down 6 cents at $37.22 a barrel. It hit a session high of $38.99, its highest in nearly three weeks.
WTI finished down 28 cents at $36.76. It had traded as high as $38.39.
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