NEW YORK, JAN. 17 -- The price of crude oil plunged by one-third today, falling a record $10.56 a barrel to levels not seen since last summer. The dramatic sell-off to $21.44 shocked traders and led several oil companies to announce immediate price cuts.

After Iraq attacked Israel tonight, crude prices briefly jumped as much as $4 a barrel in the informal "spot" market and in Japanese trading, but soon settled back to levels only a few cents above their prices of earlier in the day.

"This incident is probably not going to be quite as significant as it first appeared to be," a trader said late tonight as the market calmed down. "It turns out to be a reasonably sane evening."

{At the close of trading on the futures market in Tokyo Friday, a contract for North Sea Brent crude oil for March delivery stood at $19.70 a barrel, just 20 cents above the Thursday close in New York.}

Traders said it was not clear that the possible involvement of Israel in the Persian Gulf war would pose any direct threat to Mideast oil supplies that might force prices higher.

Lower crude prices almost immediately began to be reflected today in gasoline prices. Exxon Corp. cut its gasoline prices by 5 cents and its heating oil prices by a dime. Fairfax-based Mobil Corp. took 2 to 5 cents a gallon off its wholesale gasoline price. Conoco cut 6 to 8 cents a gallon off its gasoline price.

Crown Central Petroleum Corp. and Atlantic Richfield Co. also said they were cutting prices by unspecified amounts; Chevron Corp., Amoco Corp. and Texaco Inc. froze their wholesale prices; and Unocal Corp. said it was capping its gas price.

The plunge in oil prices removed virtually all of the "war premium" that has buoyed oil since Iraq invaded Kuwait on Aug. 2, endangering oil supplies in Saudi Arabia and elsewhere in the region.

Traders and industry analysts attributed the sharp drops to euphoria over the seeming success of the attack on Iraq and the release of 2.5 million barrels of oil from strategic reserves in the United States, Japan and Europe -- a move that increases already plentiful world supplies of oil and puts further downward pressure on prices.

Today's sharp drop in New York caught many traders by surprise and may have cost some participants in the oil markets tens of millions of dollars.

Virtually all traders had expected prices to skyrocket in the event of a war in the Persian Gulf, on the theory that hostilities could endanger the region's oil.

Although prices on the spot market among oil companies soared Wednesday night in the first hours after the attack, they quickly fell as it became clear that Iraq was not fighting back and that the release of reserves would increase supply.

"No one expected that spike move to the upside to occur that quickly," said Thomas Blakeslee, an analyst at Pegasus Econometric Group Inc. in Hoboken, N.J. "No one felt we could do it in a matter of hours."

The price dropped so fast, in fact, that it immediately triggered the Nymex's new price-limit rules, which automatically halt trading for an hour once the price moves $7.50 in either direction. Although most analysts had expected that "circuit breaker" to get its first test in a rising market after the outbreak of war, instead it was triggered as prices tumbled within seconds of the 9:45 a.m. opening.

When trading resumed, the price of oil slipped to about $23 a barrel, a $9 drop, and stayed there for most of the rest of the day. A flurry of selling in the last few minutes of the session pushed the loss to more than $10, with a barrel of high quality crude for February delivery closing at $21.44.

The price of petroleum products also plummeted by record amounts, with unleaded gasoline tumbling 21.90 cents a gallon to 60.29 cents and heating oil dropping 29.64 cents a gallon to 61.96 cents. The futures prices of petroleum products are an indirect indicator of wholesale prices.

The market buzzed with speculation and rumors about which companies had taken a beating in the sudden slide in prices. Several major trading firms and at least one oil company were said to have had "long" positions -- betting that the price would go up after the attack on Iraq -- when prices began to fall Wednesday night.

The most tantalizing -- and prevalent -- story making the rounds was that Phibro Energy Inc., a huge oil refining and trading company that is a division of Wall Street brokerage Salomon Brothers Inc., bought five cargoes of oil totaling between 3 million and 10 million barrels when the cash price was near its peak of $40 a barrel Wednesday night and couldn't sell them until after the market opened at $23. If the story were true, the company could have lost between $50 million and $170 million. "Phibro got clocked last night," one trader said. Another familiar with the situation said, "There were a few people crying up in that neck of the woods. They got hammered."

Phibro officials declined to comment. The company's president, Andrew J. Hall, said: "Sometimes we win, sometimes we lose. I'm not prepared to comment on specific trades."

About the actions today by the big oil companies, Energy Secretary James D. Watkins said he had talked to industry executives about gasoline prices but had not asked them to reduce their prices. "They've done it because they know they'll be severely criticized, but they're trying to be fair as well," he said at a Washington news conference. Staff writer Thomas W. Lippman contributed to this story from Washington.