The top U.S. futures regulator will unveil long-awaited proposals on Thursday aimed at barring manipulators from high-flying energy markets, but the agency is expected to tread lightly with its new regulations, at least initially.

In a drawn-out process that has weighed over energy markets for the past several months, the Commodity Futures Trading Commission will hold an open meeting to decide whether to adopt a proposed rule to limit the number of contracts trading entities can hold in a particular market.

The proposal, which has been kept under wraps, would still be subject to public comment that also could last several more weeks.

The new rules, if adopted, are a strand of the Obama administration's efforts to impose a new regulatory regime on the financial industry, widely blamed for the meltdown caused by a series of global speculative bubbles.

The proposals will be closely watched by the U.S. Congress where some lawmakers, facing election races in 2010, are keen see action to dampen the excessive speculation they believe drove a range of commodity prices to punishing highs in 2008.

But a number of market watchers believe the CFTC, led by Chairman Gary Gensler and four other commissioners, might not be as tough on investors as originally thought.

Michael Wittner, global head of energy research at Societe Generale, believes the positions will be fairly liberal initially.

They want to be careful not to rock the boat, not to cause any sudden market dislocations, not to cause any drop in market liquidity that will hurt commercial hedgers, and not to cause regulatory arbitrage, Michael Wittner told Reuters.

Wittner believes the regulator will be keen to set the limits to get them into law and to set precedents.

But the limits will probably be set fairly high and will likely be set at levels that won't be much different from current actual positions, he said.

Brad Samples, an analyst at Summit Energy in Louisville, said he believes the CFTC's new limits will be more stringent than those now set by the New York Mercantile Exchange for the oil market.

But Samples doesn't expect the CFTC to be too vigorous enforcing any new regulations, saying, the CFTC will look the other way except for the most egregious instances of violation.

Analysts also doubt the regulations will do much to dampen speculation in oil, which has risen above $80 per barrel after steadily rising through the latter months of 2009. Oil, however, is still well below its high of $147 set in 2008.

The CFTC must also decide which players are exempt from the limits, such as airlines, trucking companies and other companies that take delivery of the underlying commodity.

But there is much speculation on whether the big investment funds will be granted exemptions from the investment limits.

Some more traditional market players complain futures markets have been skewered by the entry of money from the so-called massive passives. There is concern the 'buy and hold' strategy of index funds push up prices, upsetting long-standing supply and demand fundamentals that have moved commodity prices in the past.

Peter Beutel, president of Cameron Hanover in Stamford, Connecticut, hopes the big funds won't be given exemptions but believes some will be issued.

What we really need is a bona fide speculator category that would be based on an entity having taken at least 80 percent of its peak long position on the short side at some point in the last six months, year or two years, Beutel said.

These markets were never designed for investors to buy and hold, any more than equities were designed for speculators to trade aggressively.

(Graphic by Jasmin Melvin; Editing by Marguerita Choy)