Oil prices have dropped due to concerns of increasing over supplying and contracting demand in China, which is one of the biggest consumers of the fuel.

Brent crude oil slipped $1.17 to $51.04 a barrel, while the US crude fell 75 cents to $46.37, Reuters reported.

In July, an official survey highlighted that growth in Chinese manufacturing activity unexpectedly slowed down due to low demand at home, as well as abroad, which also led to decline in oil prices.

"One of the difficulties is that Iran may be coming back and there is no obvious sign that OPEC will make room for them."

Last week, Reuters conducted a survey that highlighted an increase in oil output by the Organization of the Petroleum Exporting Countries (OPEC).

Oversupply worries increased as OPEC has yet to come up with a plan to accommodate the excess oil export by Iran to an already oversupplied market.

Iran Oil Minister Bijan Zanganeh said once the sanctions are lifted, the country hopes to increase output by 500,000 barrels per day (bpd).

CMC Markets in Sydney chief market analyst Ric Spooner told the news agency: "The market seems to again focus on the supply situation… one of the difficulties is that Iran may be coming back and there is no obvious sign that OPEC will make room for them."