The price of a barrel of oil slid to its lowest level since September 2003 today, bottoming out below $28 US a barrel amid more signs the world is still drowning in excess crude. That put investors in a selling mood in Toronto.

A barrel of the North American crude oil benchmark closed down $1.75 to $27.94 a barrel Tuesday afternoon, selling off heavily through the day after a report from the International Energy Agency suggested the global oversupply problem is getting worse.

The IEA said Tuesday the world is currently pumping out about two million more barrels of oil every day than demand calls for, and all that crude is starting to pile up. The latest U.S. data shows America with a near record three billion barrels in storage this week, waiting for prices to recover

"With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term," the IEA said.

The Canadian dollar managed to eke out a slight gain, closing up about a quarter of a cent to 72.05 cents US, as the U.S. dollar weakened against a number of currencies.

The gloom in oil spread to the TSX, with the benchmark index closing down 253 points to 12,283 as financials and energy, which weigh heavily on the TSX, dragged it lower.

The Toronto stock market fared better than some others around the world, as many global markets sank earlier Tuesday, led by a 5.4 per cent slide in Tokyo as renewed jitters about the global economy set off a wave of selling in banking stocks.

Banking stocks hammered

Equity markets have been in a slump so far this year after a lacklustre 2015. Several factors have kept investors in a selling mood, including falling crude oil prices, waning growth in China and increased risk of recession in other major economies if market volatility takes a toll on business confidence and investment.

Losses Tuesday were less severe in Europe than Asia.  France's CAC 40 was down 0.7 per cent at 4,038.41 and Germany's DAX fell 0.5 per cent to 8,933.11. Britain's FTSE 100 eased 0.1 per cent to 5,638.21.

"There is a genuine concern that stress in asset markets will start affecting real economics," said Chris Weston, chief market strategist at IG in Melbourne, Australia.

"This period of sustained volatility and deterioration in credit will impact businesses and one has to be concerned about how many households are feeling this drawdown in the financial markets," he said in a market commentary.

The prospect of Federal Reserve rate increases after several years of ultra-easy monetary policy had also unnerved markets. But the prospect of hikes in the near term has faded because of the market turmoil.

After a volatile day, the Dow Jones industrial average ended the day down by just 13 points at 16,014.

In Asia, Japan's Nikkei 225 slid 5.4 per cent to close at 16,085.44 and Australia's S&P/ASX 200 fell 2.9 per cent to 4,832.10. Markets also fell in Southeast Asia.

China, Hong Kong, Taiwan and South Korea were closed for Lunar New Year holidays.

Banking stocks were hammered by concerns that profits will suffer from another downturn in the global economy. National Australia Bank dropped 4.8 per cent in Sydney and Mizuho Financial slid 6.2 per cent in Tokyo.

With files from The Canadian Press and The Associated Press