Democrats in Congress are preparing a volley against oil market speculators in their effort to counter charges by Republican frontrunner Mitt Romney that the Obama administration’s energy policies are to blame for skyrocketing gasoline prices.

A coalition of consumer groups, petroleum marketers and some industrial users said Thursday that legislation will be introduced in the House and Senate in the next few weeks that would slap new controls on oil futures markets. The goal is to curb the speculation that they say is driving up oil and gasoline prices and threatening to derail the economic recovery.

According to Mark Cooper, the chief economist of the Consumer Federation of America, and University of Maryland law professor Michael Greenberger, who in the late 1990s oversaw derivatives trading at the Commodity Futures Trading Commission, the proposed law would stop investment banks like Goldman Sachs and Morgan Stanley from selling oil-based commodity index funds; order an immediate Justice Department probe into oil speculation; and add 400 oversight staff to the CFTC to police oil and other futures markets.

“The American consumer is paying 75 cents more per gallon because of excessive speculation,” said Cooper. “That’s eating a hole in consumers’ pocketbooks and the U.S. economy.”

Given the U.S.’s declining dependence on foreign oil, which is a globally traded and priced commodity in any case, Democrats plan to point in coming weeks to oil speculators as a major cause of the recent run-up in prices, just as they did in 2008. During both price spikes, there was a coincident massive jump in the number of open crude oil futures contracts sold on the New York Mercantile Exchange. Cheaper West Texas Intermediate Crude sold for about $103.21 a barrel in late trading Thursday afternoon, over $10 a barrel more than a year ago.

The recent spike clearly has nothing to do with underlying demand, which has fallen by nearly 10 percent in the past year. “Anything over $80 is certainly linked to some extent to speculation,” said James Williams, a long-time oil industry economist at WTRG Economics.

The Securities Industry and Financial Markets Association, which represents investment banks like Goldman Sachs, refused to comment for this story.

IMPACT ON THE ELECTION

With the economy showing signs of taking off and generating hundreds of thousands of private sector jobs a month, the Romney campaign in recent weeks has shifted gears to focus attention on the pain at the pump being felt by most Americans. Gasoline prices have reached $4 a gallon in many parts of the country and are now approaching levels not seen since the height of the financial crisis, when prices also temporarily soared above $4 a gallon.

Republicans on Capitol Hill blame the price run-up on the administration’s failure to open more public lands to drilling and what they say is Obama’s misguided touting of clean energy technologies. The Obama administration counters that the U.S. is producing more oil than ever, and is now a net exporter due to the president’s decision to open more lands to drilling and the industry’s new drilling technologies.

U.S. dependence on foreign oil has in fact fallen from a peak of 60 percent in 2005 to 49 percent in 2010 because of increased domestic production. Falling demand from more fuel-efficient vehicles has also contributed to falling imports. The Energy Information Agency predicts U.S. consumption of foreign-produced oil will decline to 36 percent of total supply by 2035.

HOW THE GAME WORKS

Since repeal of the Glass-Steagall Act in the late 1990s that separated traditional banking from other financial activities, investment banks have been allowed to sell exchange-traded futures funds linked to commodities. The volume of oil sold in these “synthetic” markets is now equal to 18 times daily consumption compared to 6 or 8 times daily consumption in the 1990s.

“The market functioned quite well at 8 days,” Williams said. “There were plenty of speculators to keep the market liquid.”

But before consumers grab their hatchets to go looking for a Goldman Sachs scalp, they should realize that the speculators pouring money into the commodity-based ETFs include major pension funds, hedge funds and other money managers seeking higher yields. When oil prices begin to rise because of heightened tensions with Iran or an oil workers strike in Venezuela, they buy the ETFs in hopes of making a quick killing on rising prices.

The investment bank that underwrites that contract, in turn, goes into the futures markets to offset its risk. Since there are few speculators betting the market will go down in such an environment (the buyers outnumber the sellers by a wide margin), the futures price goes even higher.

That rising price feeds back into the physical market where real people actually buy and sell oil. Oil producers look at the futures price and tell the refiners that they won’t deliver supply at the current price because they can make more money by holding onto it for another 30 days. The storage price is less than the differential, Williams explained. That immediately drives the spot price higher because the refiners need crude. The price at the pump rises right along with it.

“Anytime the future price is above the cost of storage, it will drag up the price on the spot market,” Williams said. “There actually is a connection.”

At a public hearing of the House Democratic Steering and Policy Committee Wednesday, Gene Guilford, who heads the Independent Connecticut Petroleum Marketers Association, demanded that only companies that actually use commodities – the end-users of products like oil – be allowed to participate in futures markets. A final rule on end-users under the Dodd-Frank financial reform legislation is hung up at the CFTC.

“This game of Wall Street placing bets on the direction of these products . . . should not be allowed,” the former Reagan administration Energy Department official said. “What we’re talking about here is the food that Americans buy and the energy we rely upon to run our economy.”