A fight between two powerful business lobbies will heat up this week as Senate Democrats move to rein in speculators in the oil futures market.

The airline industry has irked Wall Street, as well as some Republicans in Congress, with its aggressive campaign in favor of legislation clamping down on investors in energy markets.

“It has become abundantly clear that speculators, not the laws of supply and demand, are driving up prices,” Sen. Byron Dorgan (D-N.D.), one of the legislation’s sponsors, said on Monday.

The airline industry, which believes speculators are responsible for boosting crude prices by $30 to $60 a barrel, is bracing for potentially record losses this year due to soaring jet fuel costs.

Passenger and cargo carriers will pay $61.2 billion for jet fuel in 2008, $20 billion more than they paid last year, estimates the industry’s lobby group, the Air Transport Association.

The heads of the 12 major airlines sent a letter two weeks ago to employees and tens of millions of frequent fliers, asking them to push Congress to curb oil speculation. Pilots have beseeched passengers on flights to visit www.stopoilspeculationnow.com.

As of last Friday, 1.3 million people have sent messages to Congress through the website, according to David Castelveter, a spokesman for the Air Transport Association.

The financial industry is fighting back, beginning an ad campaign in congressional newspapers on Tuesday. Its message: Curbing speculators in commodities markets won’t ease high gas prices.

“The answer to high oil prices lies with supply and demand, not with restricting oil investors,” said Scott Talbott, senior vice president for the Financial Services Roundtable.

That argument is backed by Republicans, who are hoping to use this week’s debate over the legislation, set for a cloture vote in the Senate on Tuesday, to push for more domestic drilling.

The airline industry’s embrace of the Democratic position on oil prices has angered some Republicans who see it as a naked attempt to curry favor with the party in power.

A House GOP aide said the airlines “should know better” than to think that curbing speculators will ease their fuel costs. “We know that they know better and they still jumped on board with it,” the aide said.

Economists and other experts, including Federal Reserve Chairman Ben Bernanke and financier Warren Buffett, have mostly cast doubt on the idea that speculators are to blame for high oil prices, which are hovering around $130 a barrel. Roaring demand and tight supply are the primary culprits, they say.

But with voter outrage over pump prices, speculators make a tempting scapegoat.

The Stop Excessive Energy Speculation Act would restrict the ability of swap dealers, hedge funds, pension funds and other financial players from investing in or gaining exposure to the energy markets.

The legislation would force the U.S. Commodity Futures Trading Commission (CFTC) to differentiate between “legitimate” and “non-legitimate” hedging by market participants and place limits on the size of trades for the later.

The bill would also require the agency to gather data on over-the-counter and index traders and swap dealers. And it would force U.S.-based traders to abide by the U.S. regulatory regime when placing trades on foreign exchanges.

To help the CFTC fulfill its new powers, the bill would authorize the agency to increase its staff by 100.

The legislation, which is sponsored by Senate Majority Leader Harry Reid (D-Nev.) and Sens. Dick Durbin (D-Ill.), Patty Murray (D-Wash.), Charles Schumer (D-N.Y.) and Amy Klobuchar (D-Minn.), is not the only effort under way to rein in speculators.

House Agriculture Committee Chairman Collin Peterson (D-Minn.) is working on a bill to tighten regulation of over-the-counter and swaps trading in the agricultural and energy futures markets.

Rep. Bart Stupak (D-Mich.), the chairman of the House Energy and Commerce Subcommittee on Oversight and Investigations, has introduced legislation to curb participation by investors and other financial players in the energy markets.

Under unprecedented financial strain following the Sept. 11 terrorist attacks, the major airlines, with the exception of Southwest, lacked the funds to buy futures contracts to hedge sufficiently against rising jet fuel costs.

“You have to have an abundance of cash to hedge. The post-9/11 carriers have not had that luxury of excess cash,” Castelveter explained.

One financial services lobbyist argued that the airlines have themselves to blame for making a poor business decision. Had they locked in contracts to buy jet fuel when it was selling at a lower price, the lobbyist said, “they wouldn’t be in this position.”

The airline industry says it isn’t trying to stamp out all investors from the energy markets.

“We’re not trying to stop speculators. We’re looking to put controls on speculators who are not ever going to take control of a barrel of oil,” Castelveter said.