VIENNA, DEC. 14 -- World oil prices fell sharply today after the Organization of Petroleum Exporting Countries extended a price and production accord that is considered too weak to reverse a persistent oil surplus, and industry analysts predicted that prices could drop another $2 a barrel in coming weeks as a result.

The expected fall in crude oil prices, which began today as the outlines of the ineffectual pact became known, could lead to cuts of a few cents a gallon in U.S. gasoline and heating oil prices by spring, U.S. and Arab oil specialists said.

The sudden tumble in oil prices provoked a big rally in the stock market, driving the Dow Jones industrial average -- which tracks 30 blue-chip New York Stock Exchange issues -- ahead 65.82 points to 1932.86. Analysts said lower oil prices mean inflation will remain under control.

An intensified political rivalry between Saudi Arabia and Iran, the two principal adversaries within OPEC, was cited as the chief reason behind the group's failure to adopt new production cuts to dry up the glut of oil on world markets, the analysts said.

Saudi hostility toward Ayatollah Ruhollah Khomeini's government has grown since Iranian pilgrims became involved in violent protests earlier this year during the holy Islamic pilgrimage to Mecca, in which more than 400 persons were killed.

Many U.S. analysts say that the Saudis and their Arab allies in the Persian Gulf want prices to fall because they calculate that Iran would suffer most from the resulting decline in revenues.

By curbing Tehran's oil income, the Saudis may hope to thwart further offensives by Iran in its seven-year war with Iraq and prevent the conflict from spreading throughout the gulf.

"I think that the Saudis are more interested in humiliating and isolating Iran than in defending the current price structure," said Bryan Jacoboski, an oil analyst for the investment brokerage firm Paine Webber Inc.

Sanford Margoshes, senior vice president of the brokerage firm Shearson Lehman Brothers, said, "Politics have taken center stage."

The Saudis and their allies, notably Kuwait, rebuffed Iranian suggestions that OPEC should cut its overall production ceiling by about 5 percent. Two of the biggest overproducers, Iraq and the United Arab Emirates, have close relations with Saudi Arabia.

Prices were falling even before the conference because OPEC's 13 members currently are producing significantly more than the cartel's official overall output ceiling of 15.06 million barrels a day for all members except Iraq.

Both that ceiling and OPEC's official price of $18 were extended, ministers said.

"We lost about a dollar today {on crude oil prices}. If they keep producing at current levels, we could lose a couple more dollars by the end of January," said Paul Mlotok, an international oil analyst for the investment firm Salomon Brothers Inc.

Saudi Arabian Oil Minister Hisham Nazer said tonight that his country believed that a lowering of the production ceiling was unnecessary.

Instead, he said, prices could be sustained if individual OPEC members would stop cheating on the accord by pumping more oil than they are permitted under their quotas.

Nazer sought to play down the clash with Iran, saying Saudi Arabia's oil policy "has not ever been motivated by political objectives."

He acknowleged, however, that tensions within OPEC arising from the Iran-Iraq war were "a very big problem."

Saudi Arabia has strongly supported its fellow Arab state Iraq in the war.

The Saudis still are furious over Iranian-inspired riots in Mecca July 31, according to Arab sources close to the Saudi delegation.

In addition, the Saudis have been emboldened by the Iranians' failure to make headway against Iraq on the battlefield this year, they said.

"The Iranians don't occupy more Iraqi territory. This is what is important," an Arab source said.

The Saudis and their Arab allies would suffer from lower prices along with all the other OPEC members.

But according to many analysts, the Saudis consider that they would be the overall net beneficiaries, because lower revenues will make it significantly harder for Iran to sustain its war effort.

In addition, the Saudis have a strong interest in protecting their share of the world oil market, and they would have to reduce production and accept a smaller share in order to support prices, Arab sources said.

Nazer said the Saudis rebuffed an Iranian suggestion to increase oil prices by at least $2 a barrel because market conditions would not support an increase and because of the danger that higher oil prices would encourage consuming countries to switch to coal and nuclear power for energy.

"If you increase the price of oil, you just give the alternative sources of energy a better chance," Nazer said.

The Saudi minister did not rule out proposing a lowering of prices next year if market conditions deteriorate.

Today's agreement was endorsed, as expected, by all OPEC members except Iraq, which has refused to sign OPEC agreements since August 1986 because it has not been granted the right to pump as much oil as Iran.

Iran, which had blocked final agreement yesterday, signed the accord after its oil minister, Gholamreza Aghazadeh, flew home and persuaded his government to accept the pact, ministers said.

OPEC agreed to resume sending outside auditors to check individual countries' output levels to seek to ensure that they are not cheating by overproducing in order to get extra revenues.

The program did not work in the past, however, and industry specialists were skeptical.

"They've tried it before. People are going to treat it with a 'show-me' attitude," Jacoboski said.

The conference here appeared to mark the end of a period of more than a year during which Saudi Arabia and Iran cooperated in trying to keep prices up.

The two OPEC powerhouses set aside their political differences last year and engineered an agreement to restrain output to halt the crash that had pushed oil prices to 10-year lows of $9 a barrel.