June 23 (Bloomberg) -- Speculators became the largest players in oil futures markets, nearly doubling their share in the past eight years as prices rose to records, in a ``radical shift'' for the market, according to a congressional committee.

In January 2000, speculators controlled 37 percent of contracts to buy West Texas Intermediate crude oil on the New York Mercantile Exchange, with the rest held by physical hedgers, including refiners and airlines that need to hedge against delivered fuel costs.

By this April, speculators controlled 71 percent of the contracts, according to data provided to the House Energy and Commerce Committee by the Commodity Futures Trading Commission.

``Energy speculation has become a growth industry and it is time for the government to intervene,'' Representative John Dingell, the committee chairman, said at a subcommittee hearing today.

The hearing by the Subcommittee on Oversight and Investigations focused on speculation in energy markets, including testimony from Walter Lukken, acting chairman of the CFTC; and Doug Steenland, chief executive officer of Northwest Airlines.

``The CFTC data illustrates a radical shift in the oil futures market from one used mainly by buyers and sellers to hedge price risk to one where most of the participants are speculators,'' according to a memorandum prepared by committee staff.

Record Prices

Crude oil prices have doubled from last year, reaching a record $139.89 a barrel in trading on the New York Mercantile Exchange June 16. Congress has held several hearings on what is driving prices up, and President George W. Bush last week called for expanded drilling to respond to record prices. Crude oil for August delivery rose $1.38, or 1 percent, to settle at $136.74 a barrel at 2:57 p.m. today on Nymex.

Lukken told reporters after the hearing that the 71 percent figure cited by the committee includes speculators and swap dealers, usually large banks that help facilitate trades.

Those swap dealers are not always working on behalf of speculators, Lukken said, adding that Morgan Stanley handles risk management on futures markets for United Air Lines Inc.

The commission has asked for more information from swap dealers to determine what effect investors in commodity indexes are having on futures markets. A report will be sent to Congress by Sept. 15, Lukken said.

Speculative Positions

``Speculative positions have not been increasing during the past year,'' the commission said in a fact sheet distributed at the hearing. The net-long positions are 100,000 contracts, the lowest level in about a year and swaps dealers are almost equally long on oil as they are short, CFTC said.

Dingell, a Michigan Democrat, said Congress should explore ``a full range of options'' to limit speculation, including raising margin requirements for financial speculators to 50 percent, preventing pension funds from investing in commodities and prohibiting investment banks from owning energy assets.

``These and other ideas need to be debated, evaluated, and acted on sooner rather than later,'' Dingell said.

Imposing limits on speculation and other regulatory changes could reduce prices back down to the marginal costs of oil production, at about $65 to $70 a barrel, said Michael Masters, managing member of Masters Capital Management LLC.

Representative Bart Stupak, chairman of the investigations subcommittee, has introduced one of several pieces of legislation that aim to limit speculation in oil markets or heighten oversight of the markets by the commission.

`Driving Force'

Stupak, a Michigan Democrat, questioned the role of large investors like pension funds and endowments that participate in oil markets through index funds.

``It seems fair to ask whether a 20-fold increase in commodity index investment is contributing to a bubble in oil prices,'' Stupak said.

``Speculators are not the cause of high oil prices,'' said Representative Joe Barton of Texas, the senior Republican on the committee. Prices are driven by the lack of supply, he said.

Energy Secretary Samuel Bodman said June 21, while attending a meeting of oil producers and consumers in Saudi Arabia, there is ``no evidence that speculators are driving prices.''

Chakib Khelil, president of the Organization of Petroleum Exporting Countries, said at the meeting that speculators are driving up prices, along with the credit crisis and geopolitics.

The U.S. futures regulator last month announced it had begun an investigation of oil delivery, storage and trading as well as requiring more information from market participants including institutional investors and index traders.

``Every crisis needs a culprit,'' Sanford C. Bernstein analysts Andrew Keen, Ben Dell, Neil McMahon and Hugh Wynne wrote in a June 20 note. ``Active speculation is a catalyst for market movements, not an underlying cause.''

To contact the reporter on this story: Tina Seeley in Washington at tseeley@bloomberg.net.

Last Updated: June 23, 2008 18:08 EDT