Stop speculation now - transit groups

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WASHINGTON (CNN) -- Speculation by financial traders is causing a substantial boost in crude oil prices, according to a group of big consumers of oil now asking Congress to impose limits on commodity markets.

The newly-formed coalition - which calls itself "Stop Oil Speculation Now" - wants a better balance in the oil market between users of oil products who buy at a fixed contract price, and those who buy and sell such contracts for profit.

"Oil has become the new gold," said Jim May of the Air Transport Association, one of the coalition members. May, at a Friday news conference, said oil contracts have "become a financial instrument" for institutional investors, who now vastly outnumber what he called "physical traders" such as airlines and the trucking industry.

May's group believes reducing the effect of financial traders could cut crude oil prices by some $30 a barrel.

Congress is currently considering several variations of bills floated to deal with the issue. Most call for more rules on reporting and disclosure of investment activity in overseas markets - where the government has so far been unable to monitor trades.

The Air Line Pilots Association is another member of the coalition calling on Congress to take action before lawmakers take a break in August. "We are here to declare 'mayday' over the price of oil," said John Prater, who heads the pilots' group.

In addition to airlines, the group also includes, truckers, bus companies and gas station owners.

But scaling back the influence of oil market speculators may boost the power of OPEC to set crude oil prices, according to PFC Energy, an independent research group.

PFC analyst David Hirsch told CNN "if you limit liquidity too much, ironically you give market power to very large physical players," including OPEC. He says members of the oil producing cartel would reduce production if prices dropped dramatically.

Hirsch believes high market prices are linked with continued high demand for oil products, including China, India, and Saudi Arabia.

But since 2003, the volume of investment funds in commodity markets - especially oil - has risen from about $15 billion to $260 billion, according to the International Energy Agency (IEA), an influential oil-policy group.

But the IEA released a report in early July arguing that the increase in oil-market speculation is not driving up crude prices.

"There is little evidence that large investment flows into the futures market are causing an imbalance between supply and demand, and are therefore contributing to high oil prices," the report said.

President Bush, in a statement to reporters Friday after a cabinet-level meeting on energy policy, did not mention the role market speculators may play in high crude oil prices. His comments called for greater production, and matched those of the industry group in calling Congress to quickly act.

-- CNNMoney.com's Steve Hargreaves and David Goldman contributed to this report