Top U.S. oil market regulator in hotseat next week

Commodity Futures Trading Commission Chairman Walter Lukken makes remarks at the Reuters Regulation Summit in Washington February 6, 2008.

WASHINGTON (Reuters) - The top U.S. oil market regulator will be in the hot seat next week at a hearing on Capitol Hill where lawmakers are expected to ask tough questions about whether speculators are to blame for record-high prices in energy and agriculture markets.

Walter Lukken, acting chairman of the Commodity Futures Trading Commission, will testify before the a joint hearing in the U.S. Senate on Tuesday on whether his agency needs to boost oversight of crude oil trading.

Crude oil prices have soared 40 percent since January to record highs near $140 a barrel, and many U.S. lawmakers - mostly in the Democratic majority - see excessive speculation as the main culprit.

Lukken will testify before the joint hearing before two Senate committees - the Committee on Agriculture, Nutrition and Forestry and the Committee on Appropriations' financial services subcommittee.

U.S. corn prices have also hit record highs in recent weeks after the Midwest was hit by massive flooding that damaged many crops in Iowa and Illinois - two top U.S. producers.

Also called to testify are top executives from the New York Mercantile Exchange NMX.N and IntercontinentalExchange (ICE.N), which together host the bulk of international trading in U.S. crude oil contracts.

The CFTC has announced an inter-agency task force to explore commodity market activity, but lawmakers say the agency has been too slow to act as commodity prices have soared in recent months, adding to consumers' pain at the gasoline pump and the grocery store.

"All of a sudden two weeks ago, this man must have had some sort of epiphany," North Dakota Sen. Byron Dorgan said this week, referring to Lukken.

"I don't know what he ate for dinner, I don't know how long he slept. But he woke up and he made an announcement that they want to find out what's going on in this marketplace."

U.S. lawmakers have introduced a flood of legislation intended to boost CFTC authority over trading of U.S. oil contracts on a London exchange operated by the Atlanta-based ICE.

A group of Democratic senators, including Carl Levin of Michigan and Jeff Bingaman of New Mexico, would close what they call the "London loophole" and require the CFTC to oversee trading of oil contracts traded overseas that are deliverable in the United States.

The NYMEX, which the CFTC regulates, has about a 75 percent share of the WTI oil-contract market. ICE Futures Europe, where the CFTC has little oversight, has the remaining 25 percent.

"With this new authority, U.S. traders would no longer be able to avoid the cop on the beat by routing their trades through a foreign exchange," Levin said.

Big U.S. investment banks like Morgan Stanley (MS.N) and Goldman Sachs (GS.N), both large crude oil traders, are also feeling the heat.

Representatives of both Morgan Stanley and Goldman Sachs were on Capitol Hill this week to brief legislative staffers on their market activities, a congressional aide told Reuters on condition of anonymity.

At least one U.S. lawmaker, independent Sen. Joseph Lieberman of Connecticut - is weighing legislation that would limit commodity investment by large institutional investors.

(Additional reporting by Chris Baltimore; Editing by Marguerita Choy)