Oil prices rose to a four-month high today as the standoff over Iran's nuclear program and threats to Nigeria's main oil region raised fears of supply shortages.

Higher oil prices, as well as disappointing earnings and forecasts at several large companies, also led to a sharp drop in the stock market today.

Crude oil for February delivery surged $1.52, or 2.3 percent, to settle at $68.35 a barrel on the New York Mercantile Exchange, after trading as high as $68.80 a barrel. Oil prices have climbed 12 percent since Jan. 3 when the Iranian government said it would resume a nuclear research program that had been suspended for 16 months.

On Wall Street, the Dow Jones industrial average fell 213.32 points, or 2 percent, to close at 10,667.39, wiping its gains this year. The Standard & Poor's 500-stock index dropped 23.55 points, or 1.8 percent, to 1,261.49, while the Nasdaq composite lost 54.11 points, or 2.4 percent, to 2,247.70.

Analysts said investors were unnerved by slower revenue growth at General Electric and Citigroup and lower or temperate forecasts from companies like Motorola. The disappointing earnings announcements by Intel and Yahoo earlier in the week were also fresh in their mind, even though most technology companies that have reported so far have beaten analysts' expectations

"If you look at technology, for instance, for the S.&P. 500, 14 out of 20 companies that have reported beat the number," said John Butters, a research analyst at Thompson Financial. "But when you have some of the big names lower numbers, it sets the mood for everyone."

So far only 19 percent of the companies in the Standard & Poor's have reported fourth-quarter earnings with another 150 expected to do so next week, Mr. Butters said. "It's too early to draw conclusions," he said.

But the prospect of continued high oil prices remained on Wall Street's mind as well. As the standoff between Iran and Western nations drags on, oil experts and investors are concerned that a diplomatic or military confrontation with a major Middle East oil producer will curb oil supplies at a time when all other producers are pumping at their maximum capacity.

"You are adding volatility to an already tight spare capacity environment," said William Gerlach, senior portfolio manager at Gartmore Global Investments, a mutual fund company based in Conshohocken, Pa. Some investors may also be selling stock to lock in profits from the rally during the first few weeks of the year, he added.

Unlike in 2003, when Saudi Arabia and Kuwait increased their output to make up for the loss in production from Iraq following the American-led invasion, the world now has little untapped production capacity left to make up for the loss of Iran's exports, which average 2.5 million barrels a day.

Underlining its position as the second-largest oil producer after Saudi Arabia among OPEC nations, Iran indicated it would seek an agreement for the Organization of Petroleum Exporting Countries to cut its production by one million barrels a day starting in April, ostensibly in order to make up for a slowdown in demand in the second quarter. But analysts said the request is unlikely to be considered by other members at a time of growing uncertainty over supplies and continuing high prices.

Speaking on CNBC, Energy Secretary Samuel Bodman said today that he expected OPEC would continue to supply the market adequately. OPEC members are scheduled to meet in Vienna on Jan. 31 to consider their policy for the first half of the year.

Adding to these concerns, violence in the Niger Delta, Nigeria's main oil-producing region, has escalated in recent weeks following attacks by armed militants on major pipelines and oil platforms, forcing oil companies to cut back their production and evacuate some workers.

Royal Dutch/Shell has slashed its output by 221,000 barrels a day, or nearly 10 percent of Nigeria's total production of 2.4 million barrels, after four oil workers were kidnapped on Jan. 11. Nigeria accounts for 3 percent of global oil production.

"Such is the momentum and rigidity in views surrounding the Iranian issue and such is the intensity of the attacks in Nigeria that we would have to say that we believe the supply threats are credible in both cases," Barclays Capital analysts said in a note to investors today.

The analysts raised their price forecast for 2006 by $7 a barrel, to $68, to reflect "the sensitivity of the oil market to the situation in Iran, the strength of the global economy and demand for oil."

Goldman Sachs analysts also increased their price outlook by 7 percent on Thursday, saying that oil was likely to hit $70 a barrel soon.

That would bring prices back to their $70.85 a barrel record reached in August when Hurricane Katrina battered the Gulf of Mexico. At the time, the storm actually shut down the nation's top oil producing region, interrupted the flow of 1.5 million barrels in oil supplies and briefly led to gasoline lines.

Separately, OPEC's research department pared its outlook for global demand this year by 100,000 barrels a day. OPEC now sees demand in 2006 growing by 1.9 percent to 84.8 million barrels a day, according to a monthly report.

Commentary: