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A Kuwaiti oil worker talks on his radio at Mina Abdulah Oil Refinery, 50 Km South of Kuwait City in this file photo taken April 2005. Global producers face the threat of a nasty price war that could drive prices down to levels not seen since the depths of the 2009 recession, some analysts warned Tuesday.GF/The Associated Press

The rout in world crude markets has gained momentum and may not stop as OPEC members are showing little willingness to cede market share to North American oil suppliers in the face of slowing global demand.

Global producers face the threat of a nasty price war that could drive prices down to levels not seen since the depths of the 2009 recession, some analysts warned Tuesday. Major exporters such as Saudi Arabia and Iran have so far not been willing to cut supply to defend prices, while Libya is boosting production that had been derailed by civil war among militias.

In New York, West Texas Intermediate fell $3.61 a barrel to $82.13 (U.S.) in trading in New York, while the leading international benchmark, Brent, slumped by $2.65 a barrel to $86.24. Both prices have plunged more than 20 per cent since the highs in June in the face of rising global production and unexpected economic weakness in key markets around the world.

The sharp drop in oil prices has battered the oil-heavy Toronto market, with the S&P index losing 190 points, or 1.3 per cent, at 14,036.68 on Tuesday.

The index was dragged down by across-the-board losses among oil and gas producers, including companies such as Encana Corp. off 6.7 per cent; Penn West Petroleum Ltd. losing 7.4 per cent, and Talisman Energy Inc. down 8.6 per cent. The oil index slumped to a 14-month low and the TSX has dropped 10.4 per cent since Sept. 3.

"This has turned into a downward spiral, and it seems like each day we have a fresh dose of bearish news," said Jim Ritterbusch, president of Ritterbusch & Associates, an advisory firm in Chicago. "I don't see a bottom yet," he said. North American crude could fall to $80 a barrel within the next couple of days and Brent will continue to drift lower, he added.

In a report released Tuesday, the Paris-based International Energy Agency (IEA) shaved its demand forecast for the third straight month. Annual demand growth is now expected to hit 700,000-barrels per day this year, down from 1.1-million the IEA forecast in spring.

In contrast, global production was up by 910,000 barrels a day in September alone, and stood at 2.8-million barrels per day higher last month than September 2013.

But even with prices in the low $80s, the IEA warned that the market will remain over-supplied. "Further oil price drops would likely be needed for supply to take a hit or demand growth to get a lift," it said in its monthly oil report.

Saudi Arabia actually boosted production in September and engaged in aggressive price discounting in Asia to defend its market from African producers whose exports have been pushed out of North America due to booming production here and who are looking for a new home for their crude. The kingdom – which produces 9.7-million barrels per day – has so far dismissed calls for it to unilaterally cut production or accede to Venezuela's call for an emergency meeting of the Organization of Petroleum Exporting Countries.

Iran, typically a price hawk in OPEC, has down played concerns about lower prices, noting that a rising U.S. dollar has offset the pain for many producers. The cartel is scheduled to meet at the end of November.

"The fundamentals are definitely weak – there is no doubt you have too much supply and you do need some taken out [of the market]," Jamie Webster, head of global oil director for IHS Inc. "And now we're starting to move into momentum trading, and no one is making any sort of moves. And Saudi Arabia has been remarkably quiet on this subject."

The Paris-based agency said some Canadian oil sands producers are particularly vulnerable to lower prices, including existing producers who upgrade their bitumen and companies planning new projects. Existing producers of diluted bitumen virtually all have break-even points below $80 per barrel, it said.

Tight oil producers in the U.S. Bakken and other fields are also vulnerable, though they typically can earn a commercial return at $80. However, the U.S. producers have to constantly drill to keep their production flowing, and lower revenues will strain their ability to maintain that activity.

Some analysts believe Saudi Arabia is prepared to drive prices down further to disrupt production and investment in North America.

"I'm describing this as a price war of necessity," said Philip Verleger, an independent oil consultant based in Colorado. "And the Saudis are doing it because their market share is threatened. And I think their target is Alberta."

He said oil sands producers are aiming to increase exports of heavy crude to the U.S. Gulf Coast by 1-million barrels, which would drive out Saudi imports.

More oil sands production is slated to come from steam-driven plants, which "are relatively well insulated" at a WTI price of $85, said Judith Dwarkin, director of energy research at ITG Investment Research in Calgary. "Some of it is as economic as Bakken," she said. "It's the mined oil sands that is most exposed."

But Ms. Dwarkin said prices could pick up again if the global economy shows signs of life, or if there is an outage in the Middle East or North Africa, while a slowdown in investment would ease cost pressure for those producers who do proceed.

"It's too soon to say that we're looking at structurally lower oil prices for the longer term because of the events of the past month," she said.

With a file from Jeffrey Jones