Oil drops below $32 a barrel for the first time since April 2004

Oil prices fell for a sixth session to a new 12-year low on Monday as slowing growth in China rattled investors' hopes for demand this year and traders increased bets against any near-term recovery.

U.S. West Texas Intermediate (WTI) crude was down $1.55 at $31.61 per barrel by 11:35 a.m. EDT (1635 GMT), having fallen to the lowest level since December 2003. Brent crude futures were down by $1.76 at $31.79 a barrel, after falling to the lowest level since April 2004.

Speculators increased their net-short positions to a record high in the week to last Tuesday, in a sign that they are losing faith in a price rise anytime soon.

Analysts pointed to China's slowdown, which saw a slide in the yuan and two emergency suspensions in stock trading markets last week, as the main reasons for lower oil and commodity prices.

On Monday, turbulence gripped Chinese markets once again, as blue-chip stocks fell by another 5 percent and overnight interest rates for the yuan outside of China soared to nearly 40 percent, their highest since the launch of the offshore market.

"If the first week is anything to go by we are in for a long, volatile and very exhausting year. The week started on a bad note and ended on a good one but the market response, worryingly, was the same to both — sell, sell, sell," David Hufton, of oil brokers PVM Oil Associates, wrote in a note.

"China has torpedoed the hopes of the optimists. The third leg of the financial crises involving emerging markets that the IMF, World Bank, BIS and various messengers of doom had warned of has come into play," he said.

Morgan Stanley said on Monday that oil prices in the $20s were possible, especially if the dollar surges more against other currencies. "A 15 percent CNY (Chinese yuan) depreciation alone could send oil into the $20s," the bank said.

Monday's decline adds to last week's more than 10 percent drop in both Brent and WTI prices.

Goldman Sachs analysts, who have also said oil could hit $20 a barrel, said in a note on Friday that sustained lower prices were needed in the first quarter "so producers will move budgets down to reflect $40 a barrel oil for 2016."

Oil prices have fallen over 70 percent since the downturn began in mid-2014 as soaring global production sees hundreds of thousands of barrels of crude produced every day without a buyer.

This imbalance looks set to increase this year as Iran brings barrels back to global markets and other countries such as Iraq and Russia pump at, or near, record levels.

"If you actually look at how low (prices) need to go to hit variable-cost production, then you need a two-handle on crude and we could well be in that world now," Citi head of energy research Seth Kleinman said.

"Q2 looks brutal. You could have refiners coming offline, just as Middle East production comes back online, including Iran."

Adding to overproduction is slowing demand, especially in China where growth has dropped to its lowest rate in a generation and experts see few signs of improvement for the next few years.