* Western sanctions against Tehran lifted over the weekend
* Iran expected to raise exports by 500,000 bpd in next few months
* Iran oil will add to market already suffering from oversupply
* Short positions in US crude futures hit record volumes 

Oil prices hit their lowest since 2003 on Monday, as the market braced for a jump in Iranian exports after the lifting of sanctions against the country over the weekend.

The United States on Saturday revoked sanctions that had slashed Iran's oil exports by around 2 million barrels per day (bpd) since its pre-sanctions 2011 peak to little more than 1 million bpd.

On Sunday, Iran - a member of the Organization of the Petroleum Exporting Countries (OPEC) - said it was ready to increase its exports by 500,000 bpd.

‘Iranian exports come at a very bad time,’ said Barclays analysts.

Worries about Iran's return to an already glutted oil market drove down Brent to $27.67 a barrel early on Monday, its lowest since 2003. The benchmark was at $28.17 by 0733 GMT, down 2.7 percent from its settlement on Friday.

US crude was down 64 cents at $28.78 a barrel, not far from a 2003-low of $28.36 hit earlier in the session.

The additional Iranian supply would arrive at a time when oil markets are already trying to absorb excess production from the US, Russia, and the Middle East.

‘Major producers are currently delivering 2-2.5 million barrels per day more than demand, so the question is how long they can continue to overproduce for at that level,’ said Stuart Gulliver, CEO of HSBC on Monday.

Traders and analysts, however, have described the plunge in prices as a knee-jerk reaction, saying Iran's ambitions to export 500,000 bpd were not very realistic.

‘If you track Iran's rhetoric over the past 12-18 months, officials were projecting a 1 million bpd rise in exports as soon as sanctions were lifted,’ said analyst Virendra Chauhan at Energy Aspects, adding that the most recent downgrade in the number is indicative of the challenges that face Iranian upstream and the markets capacity to absorb its supply.

Analysts expect Iran to take time to fully revive its export infrastructure that has suffered from years of underinvestment.

But the OPEC member does have at least a dozen Very Large Crude Carrier super-tankers filled and in place to sell into the market, and traders are betting that oil prices will drop some more.

Data shows that short positions in US crude markets , which would profit from further price falls, have hit a fresh record high.

‘Since the market is strongly one dimensional with net shorts at an all-time high’, it could face further downside potential in the short term, Energy Aspect's Chauhan said.