"I was really thinking if I could beat Medina that would have put his back totally up against the wall to back up the world title.
"If he gets a good result now he will be able to be calmer and more relaxed in his heats.
"My back is against the wall now if I am to give myself any kind of title shot."
Slater was frustrated to have made another mistake under priority, a problem that has plagued him over the past couple of years.
"I blew it," he said.
"I had priority and I let him cat and mouse me into one without looking at the wave.
"I was looking at him more and by the time I realised it was a small and choppy one it was too late."
Having joined Slater as a round-three casualty on the Gold Coast last month, Medina was desperate to turn his campaign around at Bells Beach.
"It's hard to surf against Kelly anywhere, but especially here at Bells, he's pretty tough to beat," said the 21-year-old Medina.
"The waves were not so good, kind of tricky.
"It was lucky I got that seven and I was stoked to win."
There were a few anxious moments late in the heat for Medina when Slater caught one last wave, only for the judges to decide the American had not done quite enough to take the win.
"I was kind of worried because I saw it from the back and I couldn't really see how good it was," said Medina.
Defending champion Mick Fanning advanced to the last eight at Bells for the 10th straight year, overcoming "horrible" conditions to beat Brazilian Jadson Andre 12.27 to 11.60.
But fellow Australian Joel Parkinson's bid for a fourth Bells crown ended in the fourth round as he bowed out to countryman Josh Kerr, 10.40 to 10.17.
World rankings
1 Filipe Toledo (Brazil)
2 Julian Wilson (Australia)
3 Adriano de Souza (Brazil)
Miguel Pupo (Brazil)
5 Mick Fanning (Australia)
Taj Burrow (Australia)
Bede Durbidge (Australia)
Wiggolly Dantas (Brazil)