A brutal new year selloff in oil markets quickened on Monday with prices plunging 6 percent to new 12-year lows as further ructions in the Chinese stock market threatened to knock crude as low as $20 a barrel.

Amid an accelerating tailspin that shows no sign of slowing Monday's dive - the biggest one-day loss since September - triggered a rash of panicky trading across the market.

Long-term futures contracts for 2017 and beyond fell nearly as hard as those for immediate delivery as some producers rushed to hedge while a key options gauge surged to nearly its highest since 2009.

Analysts scramble to cut oil price forecasts

Standard Chartered says oil could drop to $10/barrel

Traders take record short positions

The latest catalyst was a further 5 percent decline in China's blue-chip stocks and a surge in overnight interest rates for the yuan outside of China to nearly 40 percent their highest since the launch of the offshore market. Technical and momentum selling added fuel to the selloff.

Morgan Stanley warned that a further devaluation of the yuan could send oil prices spiraling into the $20-$25 per barrel range extending the year's 15 percent slide.

"The focus is still on China and the demand concerns in China moving forward into 2016" said Tony Headrick an energy market analyst at CHS Hedging LLC.

While China's volatility is spooking traders over the outlook for demand from the world's No. 2 consumer drillers in the United States say they are focused on keeping their wells running as long as possible despite the slump.

Brent crude futures LCOc1 fell $2.00 to settle at $31.55 a barrel their lowest since April 2004. Brent has fallen more than 15 percent in six straight days of losses the worst such slump in a year.

Long-dated Brent crude prices for 2017 and 2018 fell nearly as hard as the tumbling front-month contract on Monday amid a scramble of producer hedging according to dealers.

The fierce selling triggered a renewed scramble to buy options betting on a further slide sending the CBOE volatility index .OVX a gauge of options premiums based on moves in the U.S. oil exchange traded fund over 13 percent higher to more than 63 - close to its highest level in seven years.

Nearly 17000 lots of March $30 puts CL300O6 and 18000 lots of February $30 puts CL300N6 traded doubling Friday's volumes.

The markets are positioned in a way where "traders are afraid to be long" said Clayton Vernon a trader and economist with Aquivia LLC in New Jersey. "The firm push for normalization with Iran has taken the last shred of geopolitical risk out of traders' minds."

The European Union said on Monday that the lifting of sanctions on Iran could come soon following a deal last year to curb the Middle East nation's nuclear program. Many market participants say that Iran's return to the oil markets would add more pressure to the global glut that has knocked prices from more than $100 in mid-2014.

Speculators cut their net long position to the smallest since 2010 with short positions rising in a sign that they are losing faith in a price rise any time soon.