US regulators are under pressure from Senate lawmakers to rein in what they see as excessive speculation in commodities markets, which they believe is the culprit behind record prices for crude oil that have risen nearly 40 per cent since January.

For long it has been speculated that the real reason why oil prices are rising is speculation in oil futures, or rights to buy or sell crude oil at a specific price, on a future date, rather than increasing demand from developed nations.

Evidently, American and British regulators do believe such actions have a major hand in driving prices up, and hence, have embarked on joint action to control any such rampant activity. They have just reached a landmark agreement to impose the first trading limits on oil contracts changing hands on a London electronic exchange. The agreement comes as some US lawmakers call for more regulations to rein in speculators.

Of course, the Wall Street institutions don't want the US Congress to kill their proverbial ''golden egg'' by imposing further restrictions on oil trading by way of new legislation. Hence, they have been engaged in intense lobbying in the offices of key legislators and briefing senior officials to put forth their points of view.

Executives from Goldman Sachs and Morgan Stanley, in a pair of lengthy and sometimes testy closed-door sessions in the Senate last week, made the case that their multibillion-dollar investments in energy contracts have not led to higher oil prices. Rather, they told Democratic staff members of the Energy and Natural Resources Committee that the trades allow international markets to operate efficiently and that the run-up in oil prices results not from speculation but from actual imbalances of supply and demand.

However, lawmakers didn't buy into their defence. They warned the executives that no matter what arguments they muster, it would be hard to prevent Congress from acting. Referring to a vote earlier this year to impose new mileage standards on automobile makers, the aide said, "At 90 bucks a barrel, Congress rolled the autos for the first time in 30 years - is it too much to think that Congress will impose more restrictions on you if oil goes to $150 dollars a barrel?"

Not surprisingly, the US Commodity Futures Trading Commission (CFTC) and its British counterpart hammered a deal with InterContinental Exchange (ICE) Futures Europe to impose regulations on West Texas Intermediate oil contracts that trade on the London-based electronic exchange within 120 days, the CFTC's chairman told US politicians on Tuesday.

Some analysts have opined that speculation is placing a huge premium on the price of oil, by as much as 25 to 50 per cent. A lot of accusing fingers have been pointed at ICE, one of the least-known but most powerful foreign exchanges.

By the end of 2007, this all-electronic exchange accounted for nearly a 50 per cent market share of all global oil futures contracts, a total of 138.5 million contracts - up 49 per cent from 2006. Today it boasts more than 2,100 individual traders representing virtually all of the major players in oil - banks, hedge funds, energy companies and investment giants, including the two largest securities firms in the world, Goldman Sachs and Morgan Stanley, who are also founding partners.

Moreover, ICE was earlier beyond the ambit of US laws. Taking advantage of a loophole created by the CFTC, the company says its "energy futures business" is conducted in London, and it is not subject to US laws. Over strong criticism, the CFTC had earlier agreed, although its headquarters is in the US and nearly all its trades settled in US dollars.

In a statement, ICE CEO Jeffrey Sprecher said that ICE is committed to providing "the same visibility in our oil markets that exists for US Exchanges," and that ICE Futures Europe is "fully regulated" by the British government. However, American lawmakers say that British regulators aren't vigilant enough.

The CFTC, which had earlier insisted that prices are being determined by fundamental supply and demand factors, appears to be stepping up its focus on the potential impact of speculators and commodity index traders - though some market participants say this reflects the CFTC's attempt to avoid Congress imposing tougher legislation rather than a reversal of its policy.

The CFTC acting chairman, Walter Lukken, whose agency is conducting an inquiry into oil markets, acknowledged "the environment is ripe for those wanting to illegally manipulate the markets" and that the agency was "taking constructive steps . . . to make sure there is not excessive speculation driving the markets".

Until recently, Congress had been reluctant to intervene in the energy futures markets, and the lobbying by financial entities has been a major reason. "We have known since 2001 that there were problems here, but we've run up against people on Wall Street who don't want to be helpful in policing the market," said Democrat Senator Maria Cantwell from Washington, one of several lawmakers frustrated by the effectiveness of the financial lobby.

However, with American consumers facing record oil prices and its consequent inflationary effects in an election year, public support, and hence political support, for such lobbying has dried up.

Moreover, opposition lobbies have risen up urging lawmakers to approve several bills that would limit speculative investments in energy. A new coalition of truckers, farmers and consumer groups is being spearheaded by the Air Transport Association, the lobby for the airline industry.

They are up against the International Swaps and Derivatives Association (ISDA) and the Financial Services Roundtable, the lobby for 100 of the nation's largest financial services companies. And now the Roundtable and ISDA are courting the nation's largest business federation, the US Chamber of Commerce, to join their cause.