A bold and long-overdue move aimed at curbing the spread of the latest economic cancer — the seemingly unstoppable rise in oil and gas prices — may soon be on the way.

That’s the sunny forecast from one of the country’s leading heavyweight investment strategists, Bill Knapp, who tells me relief could be coming via a sharp increase in margin requirements for the purchases of oil futures, an event he sees occurring in the next two to three months.

Speculative trading fueled by low margin requirements, where buyers can acquire a barrel of oil (now around $132.40) for about $6 or $7, or at a leveraged ratio of roughly 20 to 1, has been the major driver of the skyrocketing price.

Congress has been pushing the Commodity Futures Trading Commission, which regulates commodity futures and options markets in America, to hike margin requirements on crude purchases in an effort to temper the rise in oil prices and give consumers some relief at the gas pump.

Given the impending presidential election and the national uproar over swelling gas prices, Mr. Knapp, who helps guide strategy at a $37 billion money management subsidiary of New York Life, MainStay Investments, gives Congress a 50-50 chance of bringing about higher margin requirements and increasing the leveraged ratio to possibly 4:1.

Oppenheimer & Co.’s veteran energy analyst, Fadel Gheit, sums it up: “With the stock market acting so erratically, oil is the only game in town; it’s the last bastion for traders. Government action to boost margin requirements is badly needed and long overdue.”

A CFTC spokesman declined to comment.

With the price of gas likely within days of exceeding a national average of $4 a gallon, and growing speculation that prices of $5-plus will begin popping up frequently during the upcoming summer driving season, government action to halt the rise through higher margin requirements on oil purchases is also viewed as probable by a number of other pros. Each $1 a barrel increase or decrease in the price of oil eventually adds up to 2.5 cents more or less at the gas pump.

Mr. Knapp believes that an increase in margin requirements could trigger an avalanche of oil sales by traders that could knock the price down to between $60 and $80 a barrel. “Considering all the speculation, you could see a wave of profit taking by speculators that could drive down oil prices pretty quickly,” he says.

He also says the price of oil could come under pressure from a falloff in demand from developed countries, notably America, Japan, and some in Europe.

Mr. Knapp cautions, though, that “if the price of oil doesn’t come down really soon, you could see the U.S., as well as the whole world, dip into a recession later this year and in early 2009.” Actually, given his projected boost in margin requirements for oil purchases, he thinks a recession can be avoided. This assumes, he points out, “we can weather the triple whammy, namely the downturn in housing, the credit crisis, and elevated energy prices.”

The latest housing numbers, however, show continued weakness, with the backlog of single-family homes at the highest level in more than two decades. At the same time, April sales of existing homes fell for the eighth time in the past nine months as prices dropped 8% from a year ago. Still, Mr. Knapp sees some positive signs. He points, for example, to some pockets of recovery, increased affordability due to the decline in home prices, pent-up demand, and decent mortgage rates. Taking note, as well, of recent peppier figures on housing starts and permits, he reckons a housing recovery could kick off this summer.

As for ongoing credit worries, he thinks they may be overblown, given declining write-downs in the financial sector.

In arguing against a recession, Mr. Knapp holds out the possibility of a single quarter of negative growth in the gross domestic product sandwiched in between two quarters of puny GDP growth. A better-than-expected trade deficit in March suggests to him that first-quarter GDP will be revised upward to 1% growth or better from the initial estimated growth of 0.6%.

Relating his thinking to the likely direction of the stock market, Mr. Knapp observes that equities are basically attractive, assuming you burst the oil bubble, lower inflation expectations, and housing rebounds.

Technology stands out at the moment as his top-rated sector. What about those rampaging energy stocks? Despite the big gains, he views their valuations as reasonable, based on the current price of oil.

dandordan@aol.com