As China's economic slowdown incised Oil prices slump over 2 percent.The traders placing record bets on even lower prices and the outlook for demand lose faith in a significant market recovery.
Global benchmark Brent was down 89 cents, almost over 2.6 percent, to $32.66 per barrel and U.S. West Texas Intermediate (WTI) crude was down about 2.3 percent to $32.39.
Monday's decline adds to last week's more than 10 percent drop in both Brent and WTI prices to start the year. Traders and investors have wondered how long and deep the slide may go and as expecting oil could hit $20 a barrel.
sustained lower prices are needed to in the first quarter "so producers will move budgets down to reflect $40 a barrel oil for 2016."
Other oil market analysts are pointing 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.
"With a slowing domestic economy, mounting deflationary pressures, rising capital outflows, growing credit risks, a continued nationwide anti-corruption drive and rising U.S. interest rates, there is perhaps plenty of scope for volatility to stage a return."
Oil market speculators have increased their net-short positions, which would profit from prices falling lower, to a record high in the week to last Tuesday, in a sign that they are losing faith in a price rise anytime soon, a weekly report from a U.S. government agency that tracks commodity markets activity showed on Friday.
At the same time speculators have cut their net-long positions to fewer than 50,000 contracts, or the equivalent of 50 million barrels, according to the trading data. Longs are bets on higher prices, while shorts are wagers that the market will fall. The net position squares off the two.
Oil prices have already 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, leaving storage tanks filled to the brim.
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.
"Chinese oil data are finally starting to reflect weak economic activity. Implied oil demand in China contracted 4.9 percent (537.3 thousand barrels per day) month-on-month and 2.0 percent (216.7 thousand barrels per day) year-on-year in November, the first decline since July 2014."