Slow economic recovery in Japan coupled with a potential build in crude oil supplies dragged oil prices sharply lower in the first full trading day of August.

The Organization of Economic Cooperation and Development in June predicted a continued contraction for the Japanese economy, with gross domestic production expected to slip from 0.7 percent growth to 0.4 percent in 2017. In a statement Saturday, the Bank of Japan said exports and industrial production would stay more or less unchanged for the rest of the year.

"The economy is projected to continue to see a slower recovery in fiscal 2016, negatively affected by the yen's appreciation and a rise in crude oil prices amid the continued slowdown in overseas economies," it said in the weekend statement.

The global economy continues to face headwinds despite improvements in labor. Slow economic growth is putting downward pressure on crude oil prices because demand is too weak to take on any excess crude oil on the market.

The price for Brent crude oil was down 1.7 percent to start the trading day Monday at $42.77 per barrel. West Texas Intermediate, the U.S. benchmark price for oil, lost 1.8 percent to open at $40.85 per barrel.

Brent is down more than 10 percent since July 1.

On the supply side, the Iranian government said it may produce new terms for oil and gas companies looking to return in the post-sanctions era. Already, port officials in Tehran said there are more than 200 foreign tankers waiting offshore.

Last week, oilfield services company Baker Hughes reported a rise in North American exploration and production activity, suggesting energy companies had grown more confident since oil peaked above $50 per barrel earlier this year.

Crude oil prices continue to drag on overall revenues for most major oil companies. British energy company BP said that it would add 500,000 barrels of oil equivalent a day of new production capacity by the end of 2017, however.

Looking ahead, the Bank of Japan said it expects the economy to expand "firmly" starting in 2017.