NEW YORK, Jan. 18 -- The price of oil continued to tumble today, falling more than $2 per barrel as traders grew more confident that the war in the Persian Gulf did not pose a serious threat to oil supplies.

Oil futures contracts for February delivery fell as low as $18 a barrel -- the lowest level since early last July -- before closing at $19.25 a barrel on the New York Mercantile Exchange, a $2.19 drop. On Thursday, the one-day fall in oil prices of $10.56 had set a record.

With the price of their key raw material plummeting, oil companies continued to cut their wholesale gasoline prices by a few cents a gallon. Some said their wholesale prices were now within a pennies of their levels before Iraq invaded Kuwait in August.

"I think {oil} prices are going to go lower. Not right away," said Richard Donovan, senior vice president of the international energy department at Lehman Brothers Inc. "The world is back to where it was in July."

The decline in oil prices helped keep alive a stock market rally that also began with the air attack on Iraq. The Dow Jones industrial average, which on Thursday tacked on almost 115 points, rose another 23.27 points today to close at 2646.78.

Even midafternoon reports of a new Iraqi missile strike against Israel hardly shook oil and stock traders. While oil prices briefly edged up and the Dow headed down when the alleged attack was first reported, both quickly turned around when the story was denied.

Much of the decline in oil prices came on a selling spree in the last few minutes of trading. Brokers said traders holding "long" positions -- betting that the price would go up after the attack on Iraq -- in high-priced crude oil became fearful that the long slide in oil prices would go unchecked, and bailed out of the market.

"I believe that there still were a number of old longs still in the market that were waiting for it to go up, and when it got to the end of the day, they said, 'Let me out,' " said Mary Haskins, an oil broker at PaineWebber Inc. "I would call it nothing less than wild."

Oil traders said confidence about the war in the Persian Gulf and brimming oil inventories around the world are combining to push down prices.

"The back of the market has been broken here, so the trend is down," said Scott Matthews, an oil trader at Dow International Energy Corp. "Now we've got a period of reassessment to make: What should the price really be?"

Still, some traders cautioned that there still could be a sudden reversal of fortunes over the weekend if Iraq can pull some sort of a military surprise.

Should that happen, prices are likely to soar on the informal "spot" market between companies over the weekend before the Nymex futures market reopens Monday morning.

On the other hand, John Marchese, an analyst at Pegasus Econometrics Group Inc. in Hoboken, N.J., said, "If we end up really destroying {Iraq} over the weekend, it's going to really push oil prices down."

The stock market's gains today were underpinned not only by falling oil prices, but also by a strong bond market. The 30-year Treasury bond gained 13/32 of a point.

Advances edged declines on the New York Stock Exchange by a ratio of about 8 to 7 on active volume of 226 million shares.

Among money-center banks, Mellon Bank Corp. was down 7/8 to 22 after posting a fourth-quarter loss of 2.52 a share, compared with a loss of only 20 cents per share in the same period a year earlier.

Rumor-prone Bank of Boston frightened some investors by plunging 25 percent in intraday trading, from 4 to 3, before rebounding to close up 1/4 at 4 1/4. No fresh news was released.

Defense stocks continued strong on war news.

As TV news showed wartime aerial footage showing 'smart' bombs hitting Iraqi targets precisely and sleek new planes taking off from Saudi bases, "the high-technology weaponry seems to be proving itself to be a lot better than many people thought," according to strategist Thom R. Brown at Rutherford, Brown & Catherwood, who spoke to Knight Ridder News Service.

Among the defense issues, Raytheon was up 1 5/8 at 70 1/8, Loral jumped 1 1/4 to 35 3/4, Lockheed advanced 1 to 35 7/8 and TRW surged 3 to 40.

Even McDonnell Douglas and General Dynamics, which recently have been depressed by the Defense Department's cancellation of their big, joint contract for the A-12 Navy attack aircraft, took part in the rally.

McDonnell added 1 3/4 to 31 7/8 while General Dynamics rose 1 7/8 to 25 1/4.

The Dow transports finished up 19.22 at 998.77, while the utilities surged 2.14 to 205.93.

Among broad stock indexes, the Standard & Poor's 500 was up 4.26 at 332.23, the NYSE Composite up 1.89 at 180.87, the Value Line up 0.74 at 241.00, the Amex Market Value up 1.23 at 303.95 and the Nasdaq Composite up 1.18 at 376.99.